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World Arbitration Update: “Balancing the Protection of Foreign Investors and States Responses in the Post-Pandemic World” – Book Launch Program

Sun, 2022-11-20 00:41

The current era of emergencies, which includes climate change, environmental challenges, armed conflicts, and health crises, has a profound impact on foreign direct investment (FDI). A panel held on 27 September 2022 as part of the second edition of the World Arbitration Update (WAU) engaged with the effect of such global emergencies on international investment law (IIL) by focusing on ideas related to “Balancing the Protection of Foreign Investors and States Responses in the Post-Pandemic World”, a book published by Kluwer earlier this year and co-edited by Dr. Yulia Levashova and Dr. Pascale Accaoui Lorfing (also authors of book chapters). The book provides a comprehensive understanding of the impact of Covid-19 crisis on the IIL regime from both a State and an investor perspective. It draws focus to the analysis of investor rights and State defences from a multi-jurisdictional and regional standpoint, including Latin America, India, Korea, the United States and Russia. The book’s detailed examination of the effects of a pandemic on States and investors demonstrates how any crisis can alter the balance between investors’ legal protection under IIAs and the State’s regulatory authority to implement emergency measures.

The panel was moderated by Dr. Alvaro Galindo (Universidad de las Americas; Carmigniani Pérez Abogados) with speakers Ms. Munia El Harti Alonso (Xtrategy LLP), Dr. Pascale Accaoui Lorfing (Research Associate CREDIMI – University of Burgundy), Dr. Yulia Levashova (Nyenrode Business Universiteit), and Dr. Crina Baltag (Stockholm University).

 

Risk Allocation – “Emergency Provisions” in Contracts and IIAs

Ms. El Harti Alonso addressed “emergency provisions,” a concept that encompasses several different kinds of specific clauses that may be found in commercial contracts and international investment agreements (IIAs) (e.g. necessity and armed conflict clauses, as considered by the tribunal in CMS v. Argentina, para 353). She examined such emergency provisions through the lens of risk allocation because, fundamentally, the very existence of emergency provisions is premised on risk allocation (see e.g. Strabag v. Lybia referring to force majeure, para 791). She explained that such provisions are usually drafted by both contracting parties, or/and by the States that are parties to the relevant IIA. She elaborated that, in the FDI context, risk allocation provisions in related commercial contracts may be also invoked in  an investor-State dispute, as the investment tribunal may “identify and give effect to the risk allocation agreed by the parties in each contract” (see e.g. Strabag v. Lybia, para 791). This may include commercial contracts entered by an investor with a State – owned enterprise. With respect to IIAs per se, in Guris v. Lybia the tribunal went further and extended the risk allocation mechanism of the related commercial contract to its analysis of the IIA itself, in particular as to the emergency provision of the BIT such as the war losses clause of the 2004 Syria-Italy BIT (Guris v. Lybia, para 322). Ms. El Harti Alonso pointed out the triangular nature of IIAs, noting that in a Bilateral Investment Treaty (BIT), the host state and home state (rather than the investor) are the sole drafters of the clause. The State, through its role in drafting the clause, can be deemed to concomitantly have “assumed the risk of that situation [of force majeure (FM)] occurring” (Guris v. Syria, para 322, ibid). Such complexity is illuminated through the state’s triple identity, as elaborated by Patrick Pearsall in his article ‘The Role of the State and the ISDS Trinity’ (2018), where he explained that in the IIL regime the host state wears a triple hat as “treaty drafter, protector of investment and respondent.

 

Covid-19 and Fundamental Change Of Circumstances

Art. 62 of the Vienna Convention on the Law of Treaties (VCLT) sheds light on change of circumstances (CoC) in the international treaty regime and, as a general rule, provides that CoC may not be invoked as a ground to terminate or withdraw from treaties unless:

  1. there has been fundamental change of circumstances;
  2. such a change was not foreseen by the parties while concluding the treaties;
  3. previously existed circumstances were the essential basis of consent of the parties to be bound by the treaty; or
  4. the effect of the change is radically to transform the extent of obligations still to be performed under the treaty.

Dr. Galindo explained the legal effects of Art. 62, primarily focusing on the role of travaux préparatoires of the VCLT. He highlighted that CoC and consequences of pacta sunt servanda may apply in certain crisis situations. States may invoke Art. 62 VCLT to withdraw from IIAs upon a fundamental CoC occurring as a result of the crisis. However, it must be noted, the threshold to invoke CoC is high, as demonstrated in the Gabčíkovo-Nagymaros Project ICJ case as the conditions mentioned above must be cumulatively satisfied. With further nuance, Dr. Galindo added that going forward, attention must be paid to the strategy used by tribunals when resolving Art. 62 VCLT in connection to IIAs.

 

The State’s National Security Interest and Force Majeure

In the intricate IIL regime, States’ efforts to maintain national security are in the limelight. To safeguard national security interests, States may recourse to the provisions regulating essential security interest (ESI) or/and to the defence of force majeure (FM). Dr. Accaoui Lorfing’s chapter and presentation examine what constitutes FM, drawing attention to three sources that may provide guidance: (i) FM as defined by customary international law (CIL) as provided in  the ILC’s Draft Article on Responsibility of States for Internationally Wrongful Acts (2001) (ARISWA) Art. 23; (ii) FM as defined by national legislation and soft law; and (iii) FM clauses in contractual practice.

She emphasized the non-mandatory nature of FM clauses in national legislation, recalling that States may draft these clauses to prioritize either restrictive or expansive FM definitions. In terms of the obligation to notify the other party on FM, usually national legislation makes no mention of it, whereas soft law requires it. As such, she advised that these clauses should be drafted with a greater caution to include a list of qualified events as exemplified in the ICC model Clause on FM of 2020. This will assist parties in avoiding the situation in which a tribunal must determine what constitutes an FM situation and whether the FM clause applies in the case at hand.

States take measures for the protection of ESI i.e., national security, environment, climate change and human rights by including essential security exception clauses in IIAs. Dr. Accaoui Lorfing emphasised that ESI exception clauses have been included in an increasing number of the new-generation IIAs. As a result, tribunals will have to take these clauses into account more frequently in the future by carefully analysing their scope and the measures falling under an exception clause precluding liability, particularly in relation to the environment, human rights, and climate change. As the decision in Eco Oro v. Colombia case demonstrates, tribunals do not always give due consideration to the exception provision contained in an applicable IIA (para 829).

 

Legitimate Expectations of an Investor and the Right to Regulate

When States take measures during a crisis situation, such measures may interfere with the legitimate expectations of foreign investors under the fair and equitable treatment (FET) standard. Dr. Levashova addressed the tension of FET in relation to States’ right to regulate (RTR). She drew upon her research to explain that RTR has been recognized by tribunals in the assessment of the legitimate expectations of an investor and comprised of several elements. These are:

  1. States have inherent powers to RTR under customary international law;
  2. States can modify their laws as a part of the RTR; and
  3. the State’s legitimate objective in serving the public interest is among factors that is assessed as part of an overall balancing exercise.

She elucidated that, in recent cases such as Renergy S.à r.l. v. Kingdom of Spain and Sevilla Beheer B.V. and others v. Kingdom of Spain, tribunals have underscored that the assessment of legitimate expectations implies an inherent balancing of a state’s RTR and the investor’s rights. However, the manner in which tribunals perform the balancing exercise varies and there is no particular methodology followed in weighing the investor’s expectation and the State’s regulatory conduct. She pointed out to a lack of clarity regarding the hierarchy and allocation of weight among these factors in a tribunal’s final determination regarding the breach of legitimate expectations. Thereafter, she drew the attention to a State’s legitimate objective in serving the public interest and stated that it is only one among other intermediary factors in tribunals’ assessments. This sometimes might be problematic specifically in cases that involve a strong public interest, as was demonstrated in an assessment of FET standard in Eco Oro v. Colombia case.

While discussing the investor’s expectations of stability that may by a subject to protection, Dr. Levashova underlined that the scope of permitted regulatory changes is subject to ambiguity. She emphasized that FET claims arising out of the instability of a regulatory framework as a result of State measures aimed at dealing with any type of emergency are especially relevant in the context of a health, economic or environmental crisis. Finally, she explained that prevalent number of tribunals underlined that a State has an obligation to ensure a stable economic and legal regime, and that the FET protects only against drastic changes or fundamental changes, while pointing out that this definition that may and is interpreted in different ways does not clarify the scope of permitted regulatory changes.

 

New Horizon – Moving Forward

Considering various emerging crises, it is critical to understand what comes next in the IIL regime. In this regard, Dr. Crina Baltag stressed that the book co-edited by Dr. Levashova and Dr. Accaoui Lorfing addresses the issue of a health crisis in a timely manner given the existing IIL framework and its critics. Dr. Baltag observed that the IIL framework is clearly evolving. As reforms are visible especially in the context of the next-generation of IIAs that include the elaborated RtR provisions, as well as specific exceptions and carve-outs.

In discussing new horizons in the IIL regime, she identified four lessons that can be learned from the pandemic and in the context of ongoing ISDS reform:

  1. Collaboration: During the Covid-19 pandemic, there was clear cooperation between investors and States. Many States implemented the measures in such a way that allowed investors to successfully deal with the impact of these measures on their investments. She stated that, such collaborations are an important takeaway from the pandemic.
  2. Tools vested with investors and State: She addressed the tools available to both States and foreign investors to cope with a health crisis, such as the Covid-19 pandemic. States, in her opinion, should always follow a transparent process when dealing with investors.
  3. Novel elements and changes: She elucidated that Art. 62 VCLT is an unexplored tool in IIL that may become more relevant in the future.
  4. States’ responses: In addressing the States’ responses to a crisis, more attention must be paid to FM clauses in national and soft law, as well as State responsibility in the IIL regime pertaining to preclusions, as reflected in ARISWA Chapter V.

***

In sum, the webinar elucidated the legal nuances of the IIL regime in relation to crisis situations, such the Covid-19 pandemic. The discussions contained a timely analysis of the mechanisms that States can use to deal with an emergency, as well as the legal tools available to foreign investors under contracts and IIAs to protect their investments.

For additional coverage of World Arbitration Update click here.

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Practitioners’ View of the New ICSID Arbitration Rules: A Step in the Right Direction, but Many Unknowns and Risks of Abuse

Sun, 2022-11-20 00:37

The British Institute of International and Comparative Law (“BIICL”), and DLA Piper, recently organized an event titled Revised ICSID Arbitration Rules: Key Changes. Following the initial presentation of Martina Polasek (ICSID Secretariat), Prof. Yarik Kryvoi (BIICL), Kate Cervantes-Knox, (DLA Piper), Guglielmo Verdirame KC (Twenty Essex) and Dr. Anthony Sinclair (Quinn Emanuel Urquhart & Sullivan) shared their insights on the new rules.

The amendment of the arbitration rules coincides with the intensified efforts to reform the system of investor-state dispute settlement to make it less expensive, more time efficient and fair for stakeholders. In this blog post, we discuss the major changes the panellists touched upon, such as: greater transparency; enhanced efficiency; the tribunal’s express powers to order security for costs; the regulation of third-party funding; or the opening of ICSID to other international actors, such as Regional Economic Integration Organizations (REIOs) like the European Union.

 

Arbitrators Must Actively Ensure Efficiency, Sometimes Even at the Cost of Flexibility

The 2022 ICSID Rules impose stricter deadlines upon the parties (see Figure 1), obligations on arbitrators to conduct at least one case-management conference, and other specific changes to achieve greater efficiency. These rules also include an express obligation on the parties to ICSID proceedings to act in good faith and to conduct themselves “in an expeditious and cost-effective manner”. Failure to do so may result in the tribunal allocating additional costs.

Critics of ISDS often point to the extensive duration of ICSID proceedings and their costs, which are recognised concerns by the UNCITRAL Working Group III. The 2022 ICSID Rules aim to tackle these concerns.

Figure 1. Timeframes to render an award (new time-limits on top of the figure)

 

These changes, however, may also have potential downsides. For instance, the panellists highlighted the risk that the new rules might force arbitrators “to act with a stick” to ensure procedural efficiency at the behest of flexibility. One panellist mentioned that, realistically speaking, these changes will primarily affect the most in-demand arbitrators, who may for instance, struggle to comply with strict time-limits. According to the newly introduced Rule 12, if the tribunal cannot comply with an applicable time limit, it shall advise the parties of the special circumstances justifying the delay and specifying the date when it anticipates rendering the expected decision.

The rules also introduce the possibility of dismissing claims based on the manifest lack of legal merit (Rule 41), which addresses the concern of frivolous claims brought by an investor to put financial and reputational pressure on the host state.

The new expedited arbitration procedure makes it possible for the parties to obtain an award in a little over a year upon the constitution of the tribunal. The idea is not only to decrease duration, but also to make it easier for small and medium-sized enterprises to start ICSID proceedings. However, as one of the panellists pointed out, parties – especially states – may view the possibility of expedited proceedings with caution. Another panellist noted, that States would unlikely commit to such proceedings without first seeing the claimant’s memorial and probably will not be in a rush to respond and commit to expedited proceedings given the need to find lawyers and go through relevant internal procedures.

 

The Tribunal Can Now Expressly Order Security for Costs

As pointed out by one of the panellists, an express provision on security for costs (Rule 53) brings much-needed clarity on the power of the tribunal to order security for costs, as the old version of the rules were unclear on that.

When faced with a request to order security for costs, the arbitral tribunal will look at the other party’s ability and willingness to comply with an adverse decision, how such a decision affects that party’s ability to further pursue its (counter) claim, and at the conduct of the parties. The rules mandate that the tribunal looks at all the relevant circumstances. As pointed out by one of the panellists, this may also mean considering the existence of a third-party funder.

The general rules on costs have become more detailed in the revised rules. The tribunal can now adopt an interim decision on costs, even on its own initiative. In addition, the new rules provide that the costs following the event should become the default approach of tribunals (Rule 52).

 

Third Party Funding Is Now Expressly Regulated – With a Catch

One of the major changes brought by the new rules concerns the express regulation of third-party funding (“TPF”). Many have called for this before, with the European Parliament recently voicing its concerns.

According to the 2022 Rules, a funded party must disclose in detail information of the funder, such as its name and address, and who controls it (in case of legal persons). While the panellists generally viewed this change as positive, they also expressed some criticism. One panellist pointed out that the broad language used in the Arbitration Rules makes it hard to know exactly when something qualifies as TPF or not. For instance, would a law firm acting on contingency fees qualify as a TPF?

Moreover, as pointed out on this blog before, the obligation to disclose the TPF agreement (when the arbitrators consider this necessary) might adversely affect the litigant’s procedural strategy. For instance, it might make it so that the disclosure of certain arguments and positions of parties become known earlier – or in a skewed manner – than those parties would have wanted. This, in turn, could affect the arbitrator’s view of the case.

 

The New Rules Open the ICSID Framework to More Actors

The amended Additional Facility Rules now permit their use even when neither the state is a party to the ICSID Convention, nor the investor comes from an ICSID contracting state. That means that the ICSID Additional Facility Rules will compete with UNCITRAL rules, which are also not linked to being a party to an international treaty.

Similarly, REIOs (such as the European Union) can now also use the Additional Facility Rules. This could become even more relevant in the future with REIOs concluding more international investment protection agreements and possibly finding themselves as respondents before arbitral tribunals. In the end, the changes are important given that the EU could most probably not have become an ICSID Convention party.

Conclusion

The ICSID Secretariat has concluded the significant task of modernizing its arbitration rules, which, after years of extensive consultations with key stakeholders and preliminary drafts, it shared with the public. These changes will help alleviate some concerns in relation to ISDS.

All the panellists agreed that if the new rules had been adopted earlier, a great number of investment disputes administered under the previous ICSID Arbitration Rules would have been conducted more efficiently. The potential shortcomings of the new rules will become apparent when arbitrators apply them in practice.

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World Arbitration Update: Legal Developments in Sub-Saharan Africa – Africa’s Blooming

Sat, 2022-11-19 00:41

The second edition of the World Arbitration Update was held from 26 to 30 September 2022. The panels dedicated to the African region were held on September 28, and one of the panels focused on ‘Legal Developments in Sub-Saharan Africa’. The panel discussions provided an overview of and updates on the practice of arbitration in Sub-Saharan Africa, with a particular emphasis on the prospects for investors and legal practitioners, as well as associated challenges.

The panel was moderated by Ucheora Onwuamaegbu (ArentFox Schiff LLP). After a brief kick-off presentation by Efemena Iluezi-ogbaudu (Linklaters LLP), the topic was further debated by Ana Carolina Dall’Agnol (University of Oxford; Kluwer Arbitration Blog) Abayomi Okubote (Pennsbury Attorneys & Solicitors; Africa Arbitration Academy), Victoria Kigen, (Nairobi Centre for International Arbitration), and Njeri Kariuki (Chartered Institute of Arbitrators, Kenya).


The State of Arbitration in Sub-Saharan Africa: A Market for the Present and the Future

Efemena Iluezi-Ogbaudu based his presentation on two propositions. First, that the international arbitration market in Sub-Saharan Africa is not only a market for the present but also one for the future, given the entry into force of the Agreement establishing the African Continental Free Trade Area (AfCFTA). Second, even without the AfCFTA, positive developments in the domestic legal framework of Sub-Saharan African States make the countries of the region prime destinations for international arbitration.

In support of the first proposition, Iluezi-Ogbaudu highlighted the consistent rise in foreign direct investment (FDI) inflows in Africa. The Continent’s post-pandemic FDI inflows have increased by 130%. He opined that with this investment potential, there will inevitably be more businesses and consequently more arbitrations arising out of business transactions with relation to the Continent. He noted that, historically, this potential is illustrated by commercial and investment landmark arbitration cases like P&ID v Nigeria and World Duty Free Company v Kenya. He also pointed out that increased activity by leading arbitration practices on the Continent shows this potential. Furthermore, with the entry into force of the AfCFTA in January 2021 – albeit with a six month delay due to Covid19 – the future looks bright (developments related to AfCFTA have been discussed on the Blog on several prior occasions). The free trade area aims to primarily liberalize trade over the Continent. Its significance is emphasized by the fact that it establishes the largest free trade area by geographic size and population, making it the second largest in terms of member states, coming just after the World Trade Organization (WTO).

On the second proposition, Iluezi-Ogbaudu mentioned that changes to the domestic framework and private participation in arbitration show that Africa remains a favored destination for investment arbitration, even without the AfCFTA. The key points in this regard are the reforms conducted by many African states to amend and update their international arbitration legal framework as illustrated recently by Tanzania (which might “giv[e] investors reasons to smile”, as commented here), Nigeria and Sierra Leone’s recent arbitration acts (which are further analysed below). Long before such changes, South Africa and the Organization for the Harmonization of African Business Law (OHADA) reformed their arbitration acts. He also highlighted the pro-arbitration stance taken by national courts with specific mention being made of Kenyan and Ghanaian courts.

He concluded by pointing out the rise in ad hoc arbitration and most importantly the activities of African arbitral institutions or even foreign institutions resolving African disputes to promote international arbitration.


Rise of Arbitration in Africa and its Progressive “Africanization”

Ana Carolina Dall’Agnol focused on an analysis of the legal environment for international arbitration and its capacity to support the arbitral process in Sub-Saharan Africa. She stated that African arbitration options continue to rise. Many of these developments could, in the long-term, lead to a progressive “re-localization” or “Africanization” of international arbitration, as stated by Mbengue and Schacherer.1)Makane Moïse Mbengue, Stefanie Schacherer, ‘The ‘Africanization’ of International Investment Law: The Pan-African Investment Code and the Reform of the International Investment Regime’, Journal of World Investment & Trade 18 (2017) 414-448. jQuery('#footnote_plugin_tooltip_43081_30_1').tooltip({ tip: '#footnote_plugin_tooltip_text_43081_30_1', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], }); Indeed, many African states can be said to have adopted modern arbitration approaches. At least ten African jurisdictions have officially adopted the UNCITRAL Model Law, thirty-six Sub-Saharan states are contracting states to the New York Convention, and forty-two have ratified the ICSID Convention.

As to recent empirical data, numbers corroborate the increase of arbitration in Africa. According to the 2020 SOAS survey, there were ninety-one arbitral institutions in the whole Continent. However, it should be noted that – as pointed out by Ana Carolina Dall’Agnol –, asymmetrically, the number of cases involving African parties is still small and steady. While statistics from institutional reports show that in 2020 cases involving African parties represented 6.8% of ICC’s caseload, 11.7% for the LCIA, and 15% for ICSID, African institutions like the Arbitration Foundation of Southern Africa (AFSA), the Kigali International Arbitration Center (KIAC), and the Nairobi Center for International Arbitration (NCIA) respectively reported an incremental growth in their caseload.

The role of domestic courts in supporting the development of international arbitration was duly mentioned by Dall’Agnol. Three main factors can affect the choice of an African jurisdiction as the seat of an arbitral tribunal. Time and cost as interlocking aspects constitute the first factor. In this regard, Dall’Agnol referred to the Africa Arbitration Academy survey on costs and disputes funding in Africa, which showed that the duration of the process is one of the main factors affecting the costs of litigation.  As was commented in the Blog previously, “there is huge appetite and market opportunity for [third-party funding]”, which might solve the concerns of parties regarding costs. The second factor relates to the expertise and pro-arbitration approach of national judges while dealing with arbitration matters, while the third resides in the issue of making decisions on arbitration-related matters rendered by African courts publicly available.


Legislative Activity: a State Driven Process?

Dr Abayomi Okubote focused on some of the essential features of two recent developments in international arbitration on the Continent, namely the 2022 Nigeria Arbitration and Conciliation Bill and the 2022 Sierra Leone Arbitration Act. As part of the drafting committees of each of these bills, Dr. Abayomi indicated that one of the main and unique features of the Nigerian Bill is the institution of an Award Review Tribunal that is entitled, when opting in, to review awards rendered by an arbitral tribunal.

As for Sierra Leone, two years after its accession to the New York Convention, it passed a bill on 2 August 2022, which has subsequently been enacted on 6 September. The bill reflects the UNCITRAL Model Law and makes provisions for issues such as third party funding, interim relief, confidentiality, recognition, and enforcement of foreign awards. Most importantly, the new Sierra Leone Arbitration Act establishes the first Sierra Centre for International Arbitration with its own rules.

Further, Dr. Okubote elaborated on the AfCFTA and its forthcoming Protocol on investment, focusing on the four objectives set to inform the future text namely: (i) Africanization (requirement to have substantial activities in Africa), (ii) systemic approach to investment (promotion of Africa as a preferred destination for investments), (iii) sustainability (incorporation sustainability criteria), and (iv) codification (instead of harmonization considering the diversity of the Continent).

Ultimately Dr. Okubote was invited to present the Africa Arbitration Academy’s Model BIT (AAA Model BIT). The AAA Model BIT, which was released in July 2022, has as its main objective to promote, encourage investment, and enhance sustainable development in Africa. The AAA Model BIT was elaborated as a comprehensive non-binding document that states may use and adapt to their needs when drafting their specific BITs. The AAA Model BIT incorporates the most innovative practices, such as the protection of traditional knowledge, and the right of indigenous communities to file amicus curiae briefs.

At the backdrop of the AfCFTA and AAA Model BIT being praised as important milestones, Dall’Agnol shed an important nuance on two critical questions: would the AfCFTA be able to support resilient and sustainable investment in the next decades, which will likely be marked by increasing environmental and climate pressure? As to the AAA Model BIT, she focused on the Joint Treaty Management Committee (JTMC) to point out that, as a state-driven process, the operation of the JTMC might leave investors outside of dispute management and resolution. This may either encourage the prevention of investor-state disputes, or on the other hand, lead investors to resort to international commercial arbitration as an alternative. From the perspective of the state-parties to the BIT, the JTMC could also encourage states to engage in joint investment treaty interpretation, as has been suggested by Methymaki and Tzanakopoulos in regard to similar mechanisms set forth in other recent international investment agreements.2)Eleni Methymaki, Antonios Tzanakopoulos, ‘Masters of Puppets? Reassertion of Control Through Joint Investment Treaty Interpretation’ in Andreas Kulick (ed.), States’ Reassertion of Control Over International Investment Agreements and International Investment Treaty Dispute Settlement, Cambridge University Press, 2017, 155-181. jQuery('#footnote_plugin_tooltip_43081_30_2').tooltip({ tip: '#footnote_plugin_tooltip_text_43081_30_2', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], });


Ad hoc
Arbitration Here to Stay

Njeri Kariuki gave an insight into the evolution of ad hoc arbitration in Sub-Saharan Africa. Ad hoc arbitration is in her view a precursor in Sub-Saharan Africa. She built her assertion on the experience of the Kenyan branch of the Chartered Institute of arbitrators, which has become the default appointing authority in many contracts over the years. In the last decade, the growth in such appointments has been phenomenal. The 2020 SOAS Survey reported more than 300 such appointments for Kenya and Nigeria. In the latter, The International Centre for Arbitration and Mediation of Abuja (ICAMA) has been identified as the leading institution in ad hoc arbitrations in Nigeria.

Finally, when asked about the future of ad hoc arbitration in the region, Kariuki believes that despite the rise of arbitral institutions, ad hoc arbitrations will continue to flourish thanks to the confidentiality they offer to parties. However, there is still an important concern regarding corruption, which could eventually lead stakeholders to prefer institutional arbitrations over ad hoc arbitrations.


A Mapping of Institutional Arbitration from a South, West and East Regional Perspective

Pointing out to Africa as a continent composed of multiple regions, Victoria Kigen started with South Africa. She elaborated on the experience of the Arbitration Foundation of South Africa (AFSA) as the leading arbitration center. It has achieved a degree of success and a keen desire to develop further. The center has established a special legal exchange with China, and it launched in this regard the China-Africa Joint Arbitration Center based in South Africa in August 2015  (commented here).

As for West Africa, Kigen focused on Nigeria and Ghana. Regarding Nigeria, she mentioned that, as the home of various arbitral institutions, Nigeria hosts the Lagos Chamber of Commerce International Arbitration Centre (LACIAC), the Regional Centre for International Commercial Arbitration – Lagos (RCICAL), the Maritime Arbitrators Association of Nigeria (MAAN), Lagos Court of Arbitration (LCA). In respect of Ghana, there are two major arbitral institutions: namely the Ghana Arbitration Center (GAC) and the Ghana Association of Certified Mediators and Arbitrators (GHACMA).

In East Africa, Kigen mentioned the Kigali Arbitration Center (KIAC), which provides for domestic and international panels of arbitrators; thus, seeking to attract international renown arbitrators. Kenya is also a leading jurisdiction in the region as evidenced by the amendment of the Arbitration Act in 2009, and the subsequent establishment of the Nairobi Center for International Arbitration (NCIA) by an Act of Parliament in 2013.

Coming to the specific features expected by users of African arbitral institutions, Kigen echoed the 2020 SOAS Survey key findings, and underlined the need for those institutions to provide multilingual staff, adequate power supply, stable internet particularly for virtual hearings, as well as functioning and attractive websites. They should also be independent of governments or any other organizations.


Conclusion

From the discussions, it is evident that arbitration in Africa is blooming at the national, regional, and continental level. Based on new empirical evidence (SOAS and Africa Academy Surveys), past, present, and ongoing projects (the AAA Model BIT and the future AfCTA Investment Protocol), as well as personal experiences of the speakers as drafters of key legislation and representatives of institutions, the panel highlighted the exponential growth of arbitration in Sub-Saharan Africa over the last decades. However, despite the unquestionable rise of arbitration in Sub-Saharan Africa, there are still some issues that need to be tackled for the rise to be qualitative: such as a matching of cases that are still thin versus the number of institutions, costs, corruption for ad hoc adjudication, or a state led process sidelining investors. As conversations such as those held in the panel continue to foster a critical analysis, and a further “Africanization” is settling, those challenges can be overcome by Africa’s ownership of its blooming.

 

For additional coverage of World Arbitration Update click here.

References[+]

References ↑1 Makane Moïse Mbengue, Stefanie Schacherer, ‘The ‘Africanization’ of International Investment Law: The Pan-African Investment Code and the Reform of the International Investment Regime’, Journal of World Investment & Trade 18 (2017) 414-448. ↑2 Eleni Methymaki, Antonios Tzanakopoulos, ‘Masters of Puppets? Reassertion of Control Through Joint Investment Treaty Interpretation’ in Andreas Kulick (ed.), States’ Reassertion of Control Over International Investment Agreements and International Investment Treaty Dispute Settlement, Cambridge University Press, 2017, 155-181. function footnote_expand_reference_container_43081_30() { jQuery('#footnote_references_container_43081_30').show(); jQuery('#footnote_reference_container_collapse_button_43081_30').text('−'); } function footnote_collapse_reference_container_43081_30() { jQuery('#footnote_references_container_43081_30').hide(); jQuery('#footnote_reference_container_collapse_button_43081_30').text('+'); } function footnote_expand_collapse_reference_container_43081_30() { if (jQuery('#footnote_references_container_43081_30').is(':hidden')) { footnote_expand_reference_container_43081_30(); } else { footnote_collapse_reference_container_43081_30(); } } function footnote_moveToReference_43081_30(p_str_TargetID) { footnote_expand_reference_container_43081_30(); var l_obj_Target = jQuery('#' + p_str_TargetID); if (l_obj_Target.length) { jQuery( 'html, body' ).delay( 0 ); jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight * 0.2 }, 380); } } function footnote_moveToAnchor_43081_30(p_str_TargetID) { footnote_expand_reference_container_43081_30(); var l_obj_Target = jQuery('#' + p_str_TargetID); if (l_obj_Target.length) { jQuery( 'html, body' ).delay( 0 ); jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight * 0.2 }, 380); } }More from our authors: International Investment Protection of Global Banking and Finance: Legal Principles and Arbitral Practice
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World Arbitration Update: Taking Stock of the ECT Modernization Process – Fit for the 21st Century?

Fri, 2022-11-18 20:18

The Second Edition of the World Arbitration Update (WAU) took place from September 26 to September 30, 2022. This post highlights the panel on “Taking Stock of the ECT Modernization Process: Fit for the 21st Century?”. The panel was moderated by WAW Co-founder José Antonio Rivas (Xtrategy LLP/Georgetown Law). He was joined by Daniela-Olivia Ghicajanu (Georgetown University), Lukas Stifter (Chair, Modernisation Group – Energy Charter Treaty), Nikos Lavranos (International Dispute Resolution Arbitrator & Mediator, NL-Investmentconsulting), and Marinn Carlson (Partner and Co-leader of the Trade and Advocacy practice, Sidley Austin).

 

Quo vadis, ECT?

Ms. Ghicajanu opened the discussions by providing a general overview of the Energy Charter Treaty (“ECT”). The ECT is a multilateral trade and investment treaty which has been in force since 1998 and which provides a binding international legal framework for energy cooperation (initially between 54 Contracting Parties, among which the European Union (“EU”) and EURATOM are also included in their own capacities. Ms. Ghicajanu highlighted that, at the moment, the ECT is the most used investment agreement globally with some 150 arbitral proceedings having been initiated under the treaty to date.

Ms. Ghicajanu also walked the audience through the highly discussed ECT modernization process, which, in her opinion, was a necessity due, inter alia, to (i) the inconsistent interpretation and application of the ECT provisions by tribunals, national courts and recently the Court of Justice of the European Union (CJEU) climate change and net zero goals. Furthermore, amendments were needed because the ECT did not include a disconnection clause that expressly excluded the application of the treaty in intra EU disputes. The term disconnection clause is commonly used to refer to a provision in a multilateral treaty allowing “certain parties to the treaty not to apply the treaty in full or in part in their mutual relations, while other parties remain free to invoke the treaty fully in their relations with these parties” (See Report on the Consequences of the so-called “Disconnection Clause” in International Law in General and for Council of Europe Conventions, containing such a Clause, in Particular, at 3). ECT modernization efforts and related topics have been discussed extensively on the Blog previously.

The overview concluded with comments that could be drawn on later in the panel discussion, including  the latest developments in domestic courts regarding the ECT application (See Mainstream Renewable Power and others v. Germany, RWE v. Netherlands, and Uniper v. Netherlands) and the tension between the principles of supremacy and primacy of the EU law and principles of international public law.

 

ECT Modernization Process

While the ECT modernization process discussions started in 2017, the first negotiation only started until 2020. The ECT Reform negotiations ended in June 2022. Mr. Stifter explained that the core of the negotiations for the ECT modernization were focused on the amendments that the ECT needed to align the treaty with the Paris Agreement.

Some of the highly discussed topics during the negotiations were (i) the definition of Economic Activity in the energy sector (See article 1.6 of the ECT) and how that Economic Activity concerns to “Energy Materials and Products”, (ii) the definition of ‘Investor’ and the necessity of including a substantial business requirement, and (iii) the definition of ‘Investment’ and its prospective compliance with the laws of the home state.

Similar to ISDS reform discussions in other fora, transparency, security for costs, third party funding, damages and frivolous claims were the main topics discussed during the negotiations of the ISDS provisions in the ECT. In particular, he noted that the provisions related to frivolous claims and third-party funding obligations were inspired by the ICSID Rules. Furthermore, Mr. Stifter held that the umbrella clause in the ECT will now be limited to concrete breaches and must be exercised through the government authority authorized for such purposes. Lastly, it is noteworthy that the negotiations clarified a long-standing issue regarding which ECT provisions (if any) should not apply among members of the Regional Economic International Organisation (“REIO”) by concluding, inter alia, that article 26 of the amended ECT shall not apply to REIO members.

 

Thought Provoking Questions around the ECT Modernization Process

Mr. Rivas asked Mr. Lavranos about his perspective on the ECT modernization process. Mr. Lavranos noted that in the leaked text of the ECT Working Document there are no transition periods or cut off gates for the application of article 26 of the ECT which leaves the door open to possible retroactivity. Therefore, if article 26 of the ECT, as worded in the ECT Working Document, enters into force, it is worth questioning whether the awards of concluded cases under the current ECT provisions could be fully enforced and recognized in and outside of the EU. Retroactive application of article 26 of the ECT is a latent risk and European Court jurisprudence suggests that a retroactive application is a possibility, as happened in the Achmea ruling, for example.

Moreover, a valid question for ongoing or future cases is whether investors would have legitimate expectations, from a rule of law perspective, on the recognition and enforcement of awards. If cases are concluded after the ECT amended provisions have entered into force, EU domestic courts might not recognize these awards – even if they are ICSID awards – possibly arguing public order reasons. Nonetheless, Mr. Lavranos noted that ICSID awards, generally speaking, should provide a stronger legal basis for enforcement before domestic courts, at least outside the EU, e.g., in the Micula case, the UK Supreme Court held, inter alia, that “arbitration awards under the ICSID Convention should be enforceable in the courts of all Contracting States and with the same status as a final judgment of the local courts in those States (…)” (at para. 70). However, non ICSID awards might pose a problem, possibly, due to the public order exception under the New York Convention.

 

ECT Going Forward

Ms. Carlson started her intervention by mentioning that the entire ECT modernization process was made in a remarkably short time for a multilateral agreement. She pointed out that the Komstroy case, which is relevant for the ECT modernization process discussion, does not involve an intra-EU ECT dispute, but a dispute involving a non-EU State and a third country investor. Mr. Rivas mentioned that in some cases, such as Komstroy, the Court of Justice of the EU (CJEU) have not relied on the Vienna Convention on the Law of Treaties, but on the EU law supremacy principle over an apparent conflicting international norm.

It is likely that the recognition and enforcement of awards of cases conducted under the current provisions of the ECT would be pushed to the United States, the United Kingdom or any other jurisdiction outside the EU, for instance, Turkey. However, US courts, might be hesitant to apply article 26 of the ECT retroactively. Opposing recognition or enforcement of awards in non-EU domestic courts by retroactively relying on ISDS provisions and EU laws  might be a tall order (See the Micula saga as previously covered on the Blog).

Ms. Carlson questioned whether countries that withdrew the ECT like Italy -that is now under the sunset clause- would get the benefits of all the amendments and improved treaty provisions to the ECT or whether they would have to defend their disputes under the “former” ECT provisions.

 

Closing Remarks

Until today Netherlands, Spain, and Poland have signaled their intent to withdraw from the ECT and, more recently, France, Slovenia, and Germany have also announced that they would withdraw the treaty. Now that the ECT reform has been concluded, its outcome features various aspects such as the increase in the level of investment protection, the seeming end of intra-EU applications under the ECT, as well as the strengthening of environmental and social provisions. However, when assessing the outcome of the amended ECT, the current political landscape in the EU should be taken into consideration.

Commercial arbitration cases in the energy sector are likely to increase, and since the EU is looking to foster the investment in renewable energies, a key question is whether investors are -or not- better off the ECT. Finally, how EU and non-EU domestic courts would reconcile the regional principles of supremacy and autonomy of EU law with the principles of public international law, remains to be seen.

The complete the video of the panel is available here.

For additional coverage of World Arbitration Update click here.

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Expert Roundtable: The Energy Charter Treaty at a Crossroads

Fri, 2022-11-18 00:39

The Centre for International Law and Governance, University of Copenhagen, in cooperation with Hasselt University and Seven Summits Arbitration, recently hosted an expert roundtable on “The Energy Charter Treaty (ECT) at a Crossroads”. The discussion, moderated by the three authors of this post, focused on the relationship between investor-state dispute settlement (ISDS), investment protection, modernization of the ECT, and climate change mitigation This post highlights key themes from the discussion, drawing on the insights of the distinguished academics, practitioners, and representatives of the corporate sector who took part, such as Freya Baetens (Oxford University), Anja Ipp (Climate Change Counsel, CCC), Greg Lourie (ICC International Court of Arbitration), Martin Dietrich Brauch (Columbia Center on Sustainable Investment), Giacomo Lorenzo (Deminor) and Tomáš Linhart (Siemens Energy).

 

I. The Modernization Process: Challenges and Achievements

The discussions highlighted the challenges and achievements associated with the ECT modernization process. Speakers emphasized the necessity of reforming the ECT: a treaty that in 1998 sought energy investment liberalization “at all costs”. The discussion engaged closely with the challenges that the ECT poses to climate goals. It was stated that the ECT (i) does not distinguish between high and low emission investments, (ii) has resulted in 150 ISDS cases, including those brought by fossil fuels investors, who were awarded damages for hundreds of millions of dollars, and (iii) leaves decarbonization policies to the will of individual contracting parties (Contracting Parties).

It was stated that to adequately respond to current challenges, the revised text should (i) align the treaty with more recent trends in investment treaty-making—practical examples included the investment chapters of EU’s Free Trade Agreements (FTAs) and the 2019 Netherlands Model BIT—and (ii) cater to international climate goals. The speakers engaged particularly with the revision of the Fair and Equitable Treatment (FET) clause and of the definitions of “investment” and “investor” in the agreement in principle reached by the Contracting Parties on 24 June 2022 (not fully available at the time of the roundtable, but announced through an official press-release). As to substantive reforms, it was suggested (as then reflected in the text rendered public after the roundtable) that a modernized FET clause could take the wording of that in the EU – Canada Comprehensive Economic and Trade Agreement (CETA) on legitimate expectations as a model. It was further noted that arbitrators enjoy broad interpretative powers when treaties are broadly worded, which may shift key decisions on climate mitigation from governments to the discretion of arbitral tribunals. One panelist argued that arbitrators should already be guided by climate considerations when adjudicating ECT disputes through the application of other rules and principles of international law (Article 26(6) ECT).

The focus then shifted to the Contracting Parties’ agreement in principle on the exclusion of the application of Article 26 ECT to members of the same Regional Economic Integration Organization (REIO) in their mutual relations. This raised the issue of the EU’s general objection to any judicial body—other than a European domestic court or the European Court of Justice (ECJ)—interpreting or applying EU law. One panelist referred to the alternative proposal to allow arbitral tribunals to file a request for preliminary ruling under Article 267 TFEU. Another panelist commented that, in light of Achmea, subsequent developments like Komstroy and—for certain practitioners—the Green Power award, were not surprising. Prospects of enforcement had already become narrower. The panelists agreed that the agreement to exclude the application of Article 26 ECT (ISDS clause) between members of the same REIO (such as the EU) should settle the controversial issue of intra-EU investment disputes.

It was observed, however, that the announced modernized ECT arguably missed the opportunity to provide arbitral tribunals with more interpretative guidance, and to distinguish between investments supporting the energy transition and those fostering investment in fossil fuels (which world leaders have pledged to reduce at the COP26 last year). The next topic was the challenges faced by companies in the energy transition and their role in supporting customers in the process. Energy companies seek to replace fossil fuels by greener sources, but the pace of technology advancements, as well as the scarce availability of alternatives to wind and solar power (e.g., hydrogen) and of zero-emissions suppliers, are considerable barriers.

It was expressed that by failing to deal with ISDS, costs allocation, and damages calculation, the ECT contracting parties did not reap the full potential of the modernization. One panelist referred to the Rockhopper v. Italy award to criticize the arbitral tribunal for determining the quantum of damages based on the investor’s loss of profit, regardless of the environmental justification behind the challenged measure. Yet, the multilateral nature of the ECT rendered its revision a matter of compromise. The panel stressed, nevertheless, that the text agreed in principle aligns the ECT with modern (treaty) practice on third-party funding and requires the disputing parties to disclose the existence and identity of a funder to exclude conflicts of interest. It was noted that the funding of intra-EU disputes would arguably already diminish prior to the entering into force of the modernized ECT, given the risks related to jurisdictional objections and narrower prospects of enforcement in and outside the EU after Achmea and Komstroy.

 

II. The Modernization Process: Future Possibilities

The panelists assessed whether some (bolder) alternatives could have been considered, bearing in mind the challenges and need for compromise with which the Contracting Parties were confronted.

The speakers agreed that treaty reforms often have less impact on ISDS decisions than one may expect, due to the broad formulation of investment treaty provisions. One panelist referred to case-law on environmental exceptions (e.g., Eco Oro v. Colombia) and to arbitral tribunals’ “gymnastics” when justifying their dismissal. Reference was made to a recent CCC’s study that stresses, inter alia, the limited role played so far by environmental clauses under the ECT. As a solution, it was suggested that the treaty should include provisions on the States’ right to regulate that are as specific as possible and make compliance with clear obligations for investors a mandatory precondition for treaty protection. The speakers emphasized the general need to carefully balance the rights and obligations of foreign investors and host States, as established in recent treaties, and it was suggested that treaties could include a reference to the Hague Rules on Business and Human Rights Arbitration.

The discussion then turned to the issue of “flexibility” as opposed to a strict carve-out of fossil fuels investments from treaty protection. The panelists questioned whether the negotiators had any leeway to agree on a strict exclusion of protection for fossil fuels investments. One discussant considered “flexibility” a second-best option, and likely the only one politically feasible. Another discussant argued that a strict approach is the only one that should be pursued in the long run, due to the need to abandon fossil fuels to achieve climate neutrality goals. Yet, the same speaker acknowledged the need to address technological and geopolitical barriers.

Lastly, the panelists balanced the pros and cons of a withdrawal from the ECT against the alternative of its modernization. One discussant considered the announced amendments to the ECT to be insufficient—because the “flexibility” mechanism would offer inadequate support to the energy transition—and advocated for withdrawal or termination. Reference was made to the UN Special Rapporteur on Human Rights and Climate Change, who in his report to the United Nations General Assembly of 26 July 2022 recommended to terminate the ECT. By contrast, another discussant argued that to reduce claims from fossil fuels investors modernization is a better solution than withdrawal and referred to the ECT sunset clause. Besides, it was affirmed that the termination of the ECT would deprive renewable energy investors of treaty protection, too.

 

III. Short-Term and Long-Term Perspectives

In light of the challenges, achievements and possible alternatives discussed earlier, the speakers ventured in prognoses regarding the more immediate future, as well as long-term perspectives.

The panel stressed the lack of sense of urgency during the ECT modernization process. Hence, it found that no meaningful developments are likely to occur in the short-term given the lengthy process of ratification, despite the need to expedite the global fight against climate change. Some speakers referred to the initiatives of some EU Member States to withdraw from the treaty.

The panel further considered that, although no publicly-known ISDS cases under the ECT concerned a climate change-related domestic measure so far, disputes like the one raised by RWE against the Netherlands are likely to set the tone of investment disputes on the long-run.

 

IV. Conclusion

The modernized ECT is scheduled to be adopted by the Energy Charter Conference on 22 November 2022. In the meantime, after the expert roundtable, the draft text on which the Contracting Parties tentatively agreed on 24 June 2022 became publicly available. It remains to be seen what the final text will look like and whether it will deliver on the promise of a modernized treaty consistent with the goals of enhanced climate action. Lessons can be learned either way for future treaty-making.

The views of the speakers do not represent those of the institutions to which they are affiliated, nor those of the hosts.

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A New Investment Law in Guatemala: Will it Attract Foreign Investment?

Fri, 2022-11-18 00:03

On September 19, 2022, the Guatemalan Congress enacted the Act for Promotion of Investment of Foreign Capital, 46-2022 (Ley de Fomento de Inversión de Capital Extranjero) (the “Act”), which came into force on September 27, 2022.

The Act aims to promote investment projects from foreign capital in Guatemala. The Act gives special treatment to foreign investment by regulating the conditions and authorizations necessary for its implementation. Article 2 establishes that it applies to all investors, individuals, or foreign companies with foreign capital that will make new investments in the country.

 

Is the Act entirely clear?

The Act’s objective is to introduce a special treatment for foreign investment to promote investment projects. The intention of the Guatemalan legislators seemed to be noble and towards creating incentives to attract foreign investment but the Act does not provide a list of the incentives of the special treatment that the foreign investors will receive if they decide to apply for the benefits of the Act.

Once the investor has submitted the request to the Ministry of Economy, the Ministry must determine whether it approves or rejects the project. Such resolution from the Ministry of Economy seems to be the most important document according to the Act since it is in that resolution where the investors can finally find out what special treatments they will be granted.

While it is not entirely clear, it seems that the special treatment consists of tax benefits, given that article 13 of the Act includes reforms to the Income Tax Law (Ley de Actualización Tributaria), indicating that the investors will maintain their status and preserve the rights granted under the resolution of the Ministry of Economy for a time-lapse that cannot exceed for more than 10 years for each investment project.  

Accordingly, it will not be but until the end of the road that investors will have certainty about the benefits they will receive in Guatemala for investing their capital. From the reading of the Act, the investors cannot gain knowledge of whether the benefits will refer to labor, tax, environmental, corporate, or administrative matters. This gives a powerful discretion to the Ministry of Economy and such discretion is not necessarily what an investor is looking for when investing in a foreign country.

Article 15 of the Act establishes that the Executive Branch, through the Ministry of Economy, must issue a regulation (reglamento) within the next 60 days of the entry into force of the Act. This regulation will be an important instrument to understand how the Ministry of Economy and the rest of the agencies will apply the Act. It is possible, although not the correct legal mechanism, that the regulation will establish what the benefits for foreign investors will comprise.

 

Similar legislation in the Latin American region

Panama has enacted the Act of Legal Stability of Investments (Ley de Estabilidad Jurídica de las Inversiones) which registers national and foreign investments equivalent to USD $2,000,000.00 or more. In Panama, the Ministry of Economy is the entity in charge of the registry and guarantees the investor that it will receive legal stability in tax matters, municipal tax, labor law, free transfer of capital, customs, and exports. Such a  guarantee is for a term of 10 years, except for municipal taxes, where a 5-year term applies. In case the conditions vary, the investor may be indemnified.

In Nations Energy, Inc. and others v. the Republic of Panama, ICSID Case No. ARB/’06/19), Panama’s Act of Legal Stability of Investments was discussed. The claims arose out of communications between Panama’s General Revenue Directorate and the Ministry of Economy and Finance where they allegedly refused claimants the transfer of certain fiscal tax credits to third parties.

El Salvador also enacted the Act of Legal Stability of Investments (Ley de Estabilidad Jurídica para las Inversiones) to promote national and foreign investment through a contract of legal stability. El Salvador has signed contracts of legal stability in the energy sector, the first one involved an investment of USD $73,000,000, and the second one an investment of more than USD $13,000,000.  In El Salvador, the contracts of legal stability not only guarantee the stability of the conditions at the time of the contracts and tax regimes but also guarantee migratory conditions to the key persons related to the investment.

 

The Act and its relation with international investment contracts and treaties

In the international context, the regimes of stabilization are best known as stabilization clauses, freezing clauses, or economic equilibrium clauses. These clauses intend to be incorporated either in public contracts, investment contracts, or international investment agreements.

Stabilization clauses have been interpreted by different arbitral tribunals, for example in Duke Energy International Peru Investments No. 1 Ltd. v. Republic of Peru (ICSID Case No. ARB/03/28), the ICSID tribunal determined that the stability foreseen by stabilization clauses goes beyond the mere protection against future changes in laws and also applies to legal interpretations.

In Perenco Ecuador Limited v. Republic of Ecuador (ICSID Case No. ARB/08/6) the tribunal analyzed contracts for two exploratory oil properties that included a tax modification clause requiring the application of a correction factor to absorb any increase or decrease in the tax burden resulting from changes to the tax regime, the creation or elimination of new taxes or their interpretation. While nothing on the contract clauses was clearly designated to protect the contractual bargain, the Tribunal affirmed that they did not constitute stabilization clauses per se, since they did not purport to freeze Ecuadorian law at the time of their signing nor prohibit the State from modifying the tax regime.

From the reading of the legislative history of the Act, it seems that the Guatemalan legislator intended to replicate Panama’s and El Salvador’s model by creating a stabilization regime in Guatemala. Even though it is not expressly stated in the Act, article 13, which reforms the Income Tax Law (Ley de Actualización Tributaria), suggests that there is room for the interpretation of a stabilization clause. Such article provides that the investors will maintain their legal status and will preserve their rights covered by the resolution rendered by the Ministry of Economy, which cannot exceed a period of 10 years for each project.

Therefore, it seems that the Guatemalan legislator intended to insert a type of stabilization clause in an administrative act – the resolution of the Ministry of Economy. But the nature of this act is different from what we have in the international scenario, where stabilization clauses are either part of the contract (as is the case of El Salvador) or as part of a provision in an international investment agreement. Either way, depending on the text of the resolution of the Ministry of Economy, in the future this can lead to some potential issues of interpretation in an international context.

 

Conclusion

Will the Act attract foreign investment to Guatemala? Not yet.

The Act is missing an important component: a list of the benefits that the investors will receive as part of the special treatment when investing their new capital in Guatemala.  It is unclear whether the regulation of the Act will establish these benefits or if it will be left to other governmental authorities to issue further guidance.

Finally, the Act alone will not attract foreign investment to Guatemala. Other relevant factors are important for this to happen, such as absence of corruption, due process, and respect for the rule of law, among others.

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Arbitrators Applying the Law: Can a Tribunal Decide on a Law that was not Pleaded by the Parties?

Thu, 2022-11-17 01:04

An arbitrator’s authority to rely on a law that was not pleaded by the parties has been the subject of extensive discussions in the literature. Anecdotal evidence suggests that civil law jurisdictions broadly tend to adopt a more liberal approach to recognizing such authority in international arbitration, while common law jurisdictions, on the other hand, tend to adopt a more restrictive approach. This authority is derived from the principle iura novit curia which means “the court knows the law”. It entails the adjudicator’s power to determine matters relying on a law that was not pleaded by the parties.

The importance of the divergent approaches is highlighted in the risk of the resultant award being annulled on grounds of a denial of due process. As Justin Lew states, if a tribunal “goes off on a ‘frolic’ of its own, the tribunal risks stepping outside its mandate and the award being challenged.”

This blog post reviews and compares the application of iura novit curia in arbitration practice across common and civil law jurisdictions, as well as in investor-state arbitration, to ascertain similarities and differences in its application, posit the application of iura novit curia as a principle of transnational international arbitration law, and suggest best practice recommendations for the exercise of the power conferred on the tribunal under this principle.

 

Application of Iura Novit Curia in Common Law Jurisdictions

Although iura novit curia is synonymous with civil law jurisdictions, existing literature suggests its recognition and application in common law jurisdictions. The English Arbitration Act 1996 grants tribunals broad discretion over procedural issues, including deciding the extent to which the tribunal should take the initiative to ascertain facts and law (section 34). English courts, on this premise, have upheld awards that reached decisions on laws that were not pleaded, as long as they were not contrary to law, and the Tribunal did not consciously disregard the law pleaded by the parties. Likewise, courts in Hong Kong have generally upheld the principle and will only annul or refuse to enforce awards where this power is exercised at the expense of the parties’ due process rights.

The privy council in Gol Linhas Aereas SA v. MatlinPatterson Global Opportunities Partners (Cayman) II LP and Others recently upheld a decision of the Cayman Court of Appeal to permit enforcement of an ICC Award resulting from arbitration seated in Brazil under the New York Convention, notwithstanding the fact that the Tribunal had relied on a law that was not pleaded by the parties. The court held that it was not persuaded that the failure of the Tribunal to invite the Respondent to comment on the theory relied on by the Tribunal was so serious a denial of procedural fairness as to justify a refusal to enforce the award.

 

Application of Iura Novit Curia in Civil Law Jurisdictions

In Germany, the law affords tribunals broad discretion to conduct proceedings as they deem appropriate while requiring that parties be heard (German Constitution, Article 103; German Code of Civil Procedure, Article 1042). The courts in determining post-award proceedings uphold the principle of iura novit curia. In recent enforcement proceedings of a German domestic award, the Frankfurt Higher Regional Court declared that the award was enforceable notwithstanding the fact that the Tribunal had relied on an argument not raised by the parties in reaching its decision. The court held that the Tribunal is not bound by the parties’ understanding of the law.

On the other hand, the French Court of Appeal in Engel Austria GmbH v Don Trade annulled an award on the basis that the Tribunal had applied Austrian law principles that had not been raised or debated by the parties. While French courts recognise the application of iura novit curia in international arbitration, the due process principle of principe du contradictoire, which implies that parties be allowed the right to comment on, contradict and object to cases made against them, influenced the court’s decision.

In Sweden, the Svea Court of Appeal in City Sakerhet AB v SafeTeam i Sverige AB confirmed its long-standing case law on Swedish arbitration law that the parties’ right to be heard primarily relates to the facts and not the law. The court confirmed that, pursuant to the principle of iura novit curia, an arbitrator generally has the authority and discretion to apply the legal rule it considers applicable if the decision is based on the ultimate facts invoked by the parties. The only exception exists when the arbitrator’s application of the law comes as a surprise to the parties, i.e., when the parties could not have reasonably expected such application of the law.

In Switzerland, the Swiss Federal Tribunal has confirmed in a long line of decisions that an arbitral tribunal is subject to iura novit curia. The Swiss Courts have also held that a Tribunal need not limit itself to arguments advanced by the parties.

 

Application of Iura Novit Curia in Investor-State Arbitration

In RSM Production Corporation v. Grenada, the tribunal relied on iura novit curia as a legal justification to reopen arbitral proceedings based on newly discovered evidence. The Tribunal consisted of arbitrators from both civil and common law jurisdictions. Some investor-state tribunals have been willing to act based on iura novit curia when such an exercise of power would only be justified by the judicial function theory. In Caratube International Oil Company LLP v. Republic of Kazakhstan, for example, the annulment committee noted that the tribunal was able to act beyond the pleadings, implicitly on the basis of iura novit curia.

Other investor-state tribunals have been willing to act only where a judicial notice theory could justify its exercise. In Metal-Tech Ltd. V. The Republic of Uzbekistan, for example, the tribunal relied upon the Uzbek Applied Research Commentary of the Uzbek Criminal Code published by the Uzbek Ministry of Internal Affairs. To the extent that investor-state arbitration takes place under municipal law, it is important to reference the lex arbitri on the scope of iura novit curia.  In Bogdanov v. Republic of Moldova, the Sole Arbitrator from a civil law background ruled on the basis of the lex arbitri and held that under Swedish law, which was applicable to the proceedings, it is established that the principle of iura novit curia applies, therefore, a Tribunal applying the law is not bound by the pleadings made by the parties, and may on its own motion apply legal sources or legal qualifications that have not been pleaded by the parties.

 

Practical Recommendations for the Application of Iuria Novit Curia in Arbitration Practice

The Tribunal’s reliance on a law not pleaded is more likely in cases where the Tribunal is composed of subject matter experts. In this instance, it may be argued that the law relied on by the Tribunal, although not pleaded by the parties may lead to a fairer outcome or one that emphasises party autonomy in relation to the choice of an arbiter. The parties’ choice of arbitrators who are subject matter experts may, due to the arbitrator’s knowledge of the law, result in the reliance on laws not pleaded by the parties. This should, however, be done with caution to minimise the risk of the award being challenged and/or annulled.

To curtail this risk, it is recommended that tribunals, in seeking to rely on a law not pleaded by the parties’, request that the parties address the Tribunal on the law before relying on it in the award. Beyond ensuring the principles of natural justice are adhered to, it provides the arbitrators with parties’ perspectives on the issues and would ultimately lead to fairer decisions.

 

Conclusion

This inexhaustive review of the practice across the common and civil law divide and investor-state arbitrations shows a growing convergence in the practice of international arbitration to recognise and apply iura novit curia in international arbitration. While it is crucial for tribunals to take cognizance of the limits and specific stipulations of the lex arbitri where the arbitration takes place under municipal law (e.g., the requirement to prove foreign law), this convergence, in our view, is a possible signal to the acceptance of iura novit curia in international arbitration, and by extension, the practice of tribunals’ relying on laws other than those pleaded by the parties. This must however be limited by the principles of natural justice, the need to ensure that justice is not just done but seen to be done, and the Tribunal’s obligation to render an enforceable award.

 

Ibukunoluwa Owa is incoming associate with Hanefeld.

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The Walking Dead: Double Life of the Kabab-Ji Award

Wed, 2022-11-16 00:37

The epic finale of the Kabab-Ji saga has arrived.  On 28 September 2022, the French Court of Cassation has delivered its long-awaited decision in Kabab-Ji SAL (Lebanon) v Kout Food Group (Kuwait) (Court of Cassation, Appeal No. 20-20.260) less than a year following the United Kingdom Supreme Court’s (UK SC) final say in the case’s unsuccessful enforcement proceeding.  In its judgment, the French Court of Cassation upheld the Paris Court of Appeal’s ruling that the law of the seat, and not the law of the main contract, governed the arbitration agreement, which thereby extended to the non-signatory, Kout Food Group (KFG).  With this, the Kabab-Ji award happens to live a “double life” where, on the one hand, it is ultimately held as valid at the seat of arbitration, but nonetheless not enforceable in England.

Kabab-Ji Award’s Failure to “Survive” in England

As previously discussed here, it cannot go unnoticed (which is precisely the reason why this case attracted the international community’s attention) that the UK SC arrived at a diagonally contrasting conclusion to that of the French courts’.  In particular, that the law of the main contract sufficiently demonstrated the implied choice of the parties to subject the arbitration agreement to the same, noting that the designation of the seat of arbitration did “not by itself justify an inference that the contract (or the arbitration agreement) [was] intended to be governed by the law of that place”.  Because of this, the arbitration agreement could not be extended to KFG and therefore the enforcement proceeding was not successful in England.

In coming to this decision, the UK SC relied on the conflict-of-laws rule provided in Article V(1)(a) of the New York Convention.  Here, as the arbitration agreement was silent on the law applicable to the matters of its validity, the UK SC deemed the wording of the main contract clear enough to conclude that by subjecting the whole contract to English law, the parties impliedly intended to extend this choice of law to the arbitration agreement.  By doing so, the UK SC stayed true to the long-standing position under English law requiring analysis of the precise wording of the contract to give context to the parties’ intentions as to the law they (impliedly) desired to apply to the arbitration agreement.  This approach was also, in the words of the UK SC, “sufficient to satisfy the first rule in article V(1)(a)”.

Notably, such a “forceful” extension of the law of the main contract to the arbitration agreement was put to numbers in the Special Issue of the Journal of International Arbitration published earlier this year.  In the empirical research study conducted by Prof. Dr. Maxi Scherer and Dr. Ole Jensen on the Alleged Invalidity of Arbitration Agreements: Success Rates and Applicable Law in Setting Aside and Enforcement Proceedings, the numbers showed that out of 171 analysed court decisions only 3 considered the choice of law of the main contract as an implied choice of law governing the arbitration agreement.  These numbers are quite striking to observe though are nevertheless understandable.  The reason behind this “not so popular” tendency (of extending the law of the main contract to the arbitration agreement) may be the conflict of such an approach with the widely accepted presumption of the arbitration agreement’s separability.  Although this presumption means that the choice of law of the main contract would not automatically apply to the arbitration agreement given their independence from each other, the first could nevertheless provide some guidance as to the parties’ intentions.

It is particularly relevant in England which, as prominent scholars opine, historically “expressed caution regarding the ‘independence’ of an arbitration clause from the parties’ underlying contract”.  Since under English law an arbitration agreement is considered to be part of the main contract (although this approach has recently changed, having English judiciary and practitioners describe the arbitration agreement as a “self-contained contract collateral or ancillary to the [main] agreement”), nevertheless, as was provided in Harbour Assur. Co. (U.K.) Ltd v. Kansa Gen. Int’l Ins. Co. Ltd [1992], it is “imperative [to] giv[e] effect to the wishes of the parties unless there are compelling reasons of principle why it is not possible to do so”.  And when giving effect to the wishes of the parties, the UK SC has turned to the plain wording of the main contract.  As a result, following its reasoning in Enka Insaat Ve Sanayi AS v OOO “Insurance Company Chubb” & Ors [2020] UKSC 38 where the UK SC held that “it does not follow from the separability principle that an arbitration agreement is generally to be regarded as ‘a different and separate agreement’ from the rest of the contract or that a choice of governing law for the contract should not generally be interpreted as applying to an arbitration clause”, the UK SC indeed did not see any “compelling reasons” of why the parties’ general choice of law could not be extended to the arbitration agreement.  Given this, the Kabab-Ji award failed to “survive” the enforcement proceeding in England.

Nevertheless, precisely the separability presumption – a deeply rooted principle in French arbitration law and practice – lies at the heart of the French courts’ decisions in this case.

Kabab-Ji Award’s “Life” in France

In challenging the Paris Court of Appeal’s decision, KFG argued that the Court wrongly concluded that (a) the contract lacked any express provision “anchoring” English law as the one applicable to the arbitration agreement; and, in any case, (b) KFG failed to provide evidence demonstrating the parties’ common intention to subject the arbitration agreement to English law.  The Court of Cassation in a concise and straightforward manner has addressed both points of appeal, which it ultimately rejected.

First, the Court of Cassation has underlined that, in contrast to the interpretation approaches applied by the English courts, the “choice of English law as the law governing the contracts […] is not sufficient to establish the common will of the parties to submit the effectiveness of the arbitration agreement to English law, in derogation of the substantive rules of the seat of arbitration expressly designated by the contracts”.  By coming to this conclusion, the judges have once again not only stressed on the separability of the arbitration agreement, but also the importance of the parties’ express intentions when it comes to the law applicable to the arbitration agreement.  The rationale behind this reasoning primarily stems from the French practice and law.  The French had expressly adopted the separability presumption almost 60 years ago in Ets Raymond Gosset v. Carapelli (Court of Cassation, 1963) and codified it in Article 1447 of the French Code of Civil Procedure.  Ever since, this presumption was widely applied in France.  Although this presumption is also contained in Section 7 of the 1996 English Arbitration Act, the practice of its application visibly differs from that in France.  Such a strong legal tradition may be the reflection of the French legislators’ intention to “guard” the arbitration agreement’s validity in case of the main contract’s invalidity.  This all to ensure that the arbitration agreement would indeed “survive”; while in England there were instances where an arbitration agreement, in contrast, did not “survive” the invalidity of the main contract (e.g., Fiona Trust & Holding Corp. v. Privalov [2007] EWCA).

And second, flowing from the above finding the judges stressed that KFG failed to provide evidence which would “establish unequivocally the common will of the parties to designate English law as governing the effectiveness, transfer or extension of the arbitration agreement”.  Such a determination naturally underscores the importance of the designation of the seat of arbitration, which under French law would have the closest connection to the arbitration agreement at instances when it is silent on the law governing it.  And in such case, as leading scholars state, it would be “almost always and inevitably an implied choice” of the parties.

For these reasons, the Kabab-Ji award continues to “live” in France.

Lessons Learnt

This case is a bright example of when two systems of law – French and English – stay true to their legal traditions and principles, even if this brings to diverging results.  Although such a precedent demonstrates the inconsistent practice of how the law applicable to the arbitration agreement may be determined, this case nevertheless shows that there is no “right” or “wrong” approach.  The only natural conclusion to make in such circumstance would be to keep in mind these diverging approaches as early as at the stage of drafting an arbitration agreement.  Even though the Kabab-Ji “story” has come to an end, it has marked its place as an important precedent on which the international community may reflect and learn.

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Seoul ADR Festival Recap: Energy Market Disputes in an Almost Post-Covid World

Tue, 2022-11-15 00:41

On the second day of the 11th Asia-Pacific ADR Virtual Conference, the KCAB, the South Korean Ministry of Justice, the ICC Court of Arbitration and UNCITRAL hosted a panel on the state of the energy markets in 2022.

The panel was moderated by Dr. Wolfgang Peter (Senior Partner, Peter & Kim) and the panelists included Annette Magnusson (Co-founder, Climate Change Counsel), Aisha Abdallah (Partner, ALN Kenya), Dr. Matthew Secomb (Partner, White & Case), Steffen Lund (Investment Director, Business Lolland Falster), Todd Wetmore (Partner, Three Crowns) and Steven P. Finizio (Partner, WilmerHale).  Dr. Peter noted at the outset that the panel aimed to comprehensively evaluate the state of the energy industry: from the difficulties and disputes arising from a transition to renewables, disputes arising from traditional oil and gas projects to renewables projects, to specific commentary about the current state of the energy market in Europe and the Asia-Pacific.

 

The State of the Energy Industry: Tensions Between Short-Term Requirements and the Long-Term Vision

Ms. Magnusson underscored that the International Energy Agency (the “IEA”) has described the current situation as the “first truly global energy crisis” whose impacts will be felt for years to come. She described a central tension for states that are seeking a transition to renewable energy sources: their urgent short-term needs, namely industrialization and electrification (and the methods required to best fulfil them), are not aligned with their long-term goals of sustainability or decarbonization.

She noted that, while there have been considerable investments in clean energy and renewable sources, the current level of investment (USD 1.3 trillion) is simply insufficient to meet the target of Net Zero Emissions by 2050, which requires almost triple the amount of investment (USD 4 trillion). Ms. Magnusson also acknowledged that the question was not just about the amount of investment, but the destination of that investment, considering investment into the developing world for clean energy seems to have flatlined.

Ms. Abdallah pointed out that the cost of moving to renewable sources of energy is not similar across the world. Countries in Africa that have not yet fully industrialized (and where millions of people still do not have access to electricity) cannot be expected to industrialize solely by using renewables. She pointed out that no country had managed to do so — all countries to date have industrialized using fossil fuels. Ms. Abdallah highlighted that concurrent with their sustainability obligations, African nations have developmental obligations to their citizens that they must prioritize.

Therefore, the extent and gravity of the short-term needs further complicate an already tricky debate. Ms. Abdallah and Ms. Magnusson also agreed on the need for lack of funding for renewables projects in Africa (and other parts of the developing world) to be corrected as soon as possible.

On that front, Mr. Lund commented from his experience in developing renewable energy projects in Lolland-Falster in Denmark: a region that produces 5-7 times the energy it consumes. He flagged location as a key business consideration when planning green energy projects: it was helpful to base these projects near major cities with sustainable growth potential to both raise funding and to ensure the project’s long-term sustainability.

 

Disputes Arising from the Development of Offshore Wind

The panel then discussed offshore wind, a form of renewable energy that has seen tremendous growth recently, particularly in Asia. Dr. Secomb discussed the various phases of an offshore wind project — the establishment phase, the construction phase, the operation phase and the long-term use phase — and the kind of disputes that can arise.

  • Risks at the establishment phase include the constantly developing regulatory regimes, where changes (or risk of changes) in regulations can negatively impact transactions, as well as issues connecting offshore wind projects to the larger project grid.
  • Risks at the construction phase involve all of the risks that are associated with construction of any large-scale project but are exacerbated by the difficulties of offshore construction, such as weather and lack of availability of the necessary vessels. Due to the risk and complexities involved, it is unlikely for one EPC contractor to undertake the full project — leading to multiple contractors and higher risk.
  • Risks at the operation phase involve warranty claims, which are heightened, as well as increased interface risks due to the construction contractors and operations & maintenance contractors generally being different entities, unlike what is the case with other major projects.
  • Long-term risks involve risks of disputes from changes in governmental regimes governing these projects, such as reduction in subsidies. These could become investor-state or other disputes. There are also risks of disputes arising from the environmental impact of these projects on local communities.

 

The Energy Crisis and Its Impact on the European and Asian Markets

Mr. Wetmore provided comments on the gravity of the energy crisis being faced by the European markets, the response of European Authorities and his analysis of the possible implications of their response.

He began by reminding the audience that, since early 2021, European gas prices have faced unprecedented volatility, at some points reaching more than 500-1,000% of normal gas prices, mostly caused due to interruptions in supply of gas from Russia. This price volatility has had a tremendous impact on European industry, leading to a 70% reduction in fertilizer production, a 50% reduction in aluminum production and a prediction from Goldman Sachs that 40% of Europe’s chemical industry faces a permanent rationalization of production in Europe.

Faced with these challenges, European authorities sought to provide a three-pronged solution: (1) a new LNG price benchmark that would accurately reflect the price of LNG transactions in Europe, which the current benchmark (TTF) that is indexed to the main European gas exchange no longer does; (2) a temporary price cap until the new benchmark is developed; and (3) the creation of a single European gas purchasing consortium, which would allow European companies to consolidate their purchasing power. He remarked that some have stated that these interventions could have a dampening impact on prices as it sends a signal to the market that higher prices would not be tolerated. At the same time, there is a risk that artificially low prices could lead to lower supply and lower investment into development of new infrastructure, as well as disincentivizing gas conservation.

Mr. Finizio commented on how the last few years have fundamentally changed central assumptions that were the basis of conversations about the LNG market in Asia. For instance, it was normal to expect that there would be a continuous increase in both demand and supply for LNG in Asia. This growth in demand was expected despite a concurrent growth in renewable energies as several major economies in the region moved from coal to LNG, which was seen as the cleaner fuel. However, with the significant increase in prices (and the reduction in supply) and the possibility of European buyers seeking more LNG, it is possible that there would be a reduction in demand for LNG in the future — which could have negative consequences for the environment if there is a resultant switch back to coal.

 

Conclusion

The energy market is at a crossroads: the need to further develop and transition to renewable sources is keenly felt, but due, among other reasons, to the pandemic and the interruptions in supply arising from the military conflict in Europe, fulfilling short term needs has become a priority.

There undisputedly will be an increase in the number of arbitrations in the sector, whether they be gas price review disputes or disputes of other kinds.

As Dr. Peter noted, the added complexities the panelists described show that arbitrations in this sector are more akin to three-dimensional chess than regular chess. Some of these complexities are inherent to the industry, and some are a result of the complicated mechanisms that are utilized to determine a price for energy commodities.

 

More coverage from Seoul ADR Festival is available here

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Seoul ADR Festival Recap: Procedural Innovations in International Arbitration

Mon, 2022-11-14 00:41

The Seoul ADR Festival (“SAF”) 2022, conducted by the Korean Commercial Arbitration Board, was held between 7-11 November 2022. The 11th Asia-Pacific ADR Virtual Conference, the flagship conference of SAF 2022, took place on 9-10 November 2022 and was attended by more than 400 participants. It covered a broad range of topics over four sessions. The second session of the first day, entitled “Innovation Updates,” brought together experienced arbitration professionals from various jurisdictions to discuss an array of recent international arbitration.

The panel was moderated by Sue Hyun Lim (Partner, Kim & Chang) and its discussants comprised of Alastair Henderson (Partner, Herbert Smith Freehills), Jeonghye Sophie Ahn (Partner, Yulchon LLC), Andrés Jana Linetzky (Founding Partner, Jana & Gil Dispute Resolution), Swee Yen Koh (Partner, WongPartnership), Eva Kalnina (Independent Arbitrator, Arbitration Chambers) and Yoshimi Ohara (Partner, Nagashima Ohno & Tsunematsu).

Ms. Lim opened the session by introducing the relevance of the session topic, explaining it in the context of a possible decline in innovation for procedural issues, given that the use of technology has become the focal point of arbitration.

 

Resistance to Due Process Paranoia and Adoption of Expedited Procedures and Virtual Procedural Conferences

Mr. Henderson noted that, unlike before, with major headline innovations in emergency arbitration, expedited cases and summary case disposals, currently the focus is on incremental improvement of online case resolution. Mr. Henderson opined that the most important recent procedural innovation is the pushback to arbitral due process paranoia that has been taking place, especially with backing from courts and institutions.

Mr. Jana made reference to the UNCITRAL Expedited Arbitration Rules (2021), remarking that UNCITRAL had created expedited arbitration rules that will potentially become globally accepted standards of efficiency.  Taking a step further, he suggested that expedited arbitration could even become the default procedure in arbitration.

Ms. Koh noted that investment arbitration was now also following expedited rules. She explained that other measures of efficiency have recently been taken up by some institutions, such as the rule on summary dismissal of both claims and defenses in Article 22.1(viii) of the LCIA Rules 2020.

Ms. Kalnina focused the discussion on improvements in virtual hearing technology and observed that there has been a general change of mindset with regard to the utility and acceptability of video calls to resolve procedural issues. She also touched upon other major innovations such as the ICC reports on cybersecurity and the new ICSID rules of 2022.

Along the same lines, Ms. Ohara detailed the recent progress that has been made in establishing protocols for virtual hearings. She noted that such protocols would enable arbitration to meet the requirements of the business community in a way that judicial proceedings cannot. In particular, she made reference to the ICC protocols on virtual hearings that were developed during the global pandemic.

 

Alternatives to Multi-Tiered Dispute Resolution

Mr. Henderson questioned the efficacy of multi-tiered dispute clauses. On the one hand, he argued that it is a good idea in principle to have a tiered arrangement that allows the senior management to meet and negotiate. On the other hand, he pointed out that in practice cases rarely were resolved at the early stages of a dispute. This is because the senior management of the parties to a dispute have often already talked prior to instructing lawyers, making the multi-tiers redundant or even increasing time and costs. Mr. Henderson argued that mediation should not be formally required as part of a multi-tiered dispute clause and should instead be a natural part of the process, wherein the tribunal offers at all stages an off-ramp to mediate without the necessary binary outcome of arbitration, making it a multi-pronged dispute resolution instead of a multi-tiered one. Mr. Henderson also noted that, in his view, the other measures of multi-tiered dispute resolution, such as reference to Dispute Boards, were often without benefit.

Ms. Koh agreed, noting that it depends on the counsel and parties and whether they have engaged the multi-tiered dispute resolution process in good faith. She noted that the timelines for negotiation and mediation should be kept short, and she agreed with Mr. Henderson that mediation should be offered over the course of arbitration proceedings instead. She also agreed that dispute adjudication boards are ineffective and add to costs and noted that expert determination is more effective to resolve specific issues, so long as the determination is considered final and will not be further litigated unless there is manifest error.

Mr. Jana observed that there is now a tendency for parties to skip arbitration altogether. In particular, he noted that the trend is visible in investment arbitration, where mediation is gaining steam.

 

The Role of Institutions in Making Arbitration More Efficient

Ms. Ohara argued that institutions could incentivize efficient conduct of arbitration and penalize parties for their use of delay tactics. She added that institutions could publish examples of best practice of expeditious conduct to encourage parties to borrow from them. Ms. Ahn further noted that institutions can influence parties via passing new rules on expeditious conduct.

Ms. Kalnina remarked that institutions have been critical in improving efficiency of arbitration, wherein procedures are much faster. Institutions have also been quick to respond to the pandemic, and in terms of procedural efficiency.

 

Arbitrator Challenges

Ms. Kalnina pointed out what she considered to be some of the primary issues with arbitrator challenge and disclosure. She highlighted the gaps in the IBA Guidelines on Conflicts of Interest and observed that there are no clear standards to apply (i.e. whether to apply objective standards of the parties or of a reasonable woman). She further pointed to different institutions applying different practices behind closed doors, and to certain inefficiencies, such as the rule regarding the key issue of repeat appointments, and abuse by parties on challenges for irrelevant issues, such as appearing on panel discussions. Ms. Kalnina stated that as a starting point, to solve the issues with arbitrator challenge and disclosure, there needs to be an innovative cross-border guidance on disclosure and challenges beyond the IBA Guidelines, which tribunals and parties would adopt more uniformly.

Ms. Ohara agreed that there are limits on what should be disclosed, but the rule of thumb had to be that of disclosure. She said she believed the LCIA could produce sanitised decisions as to reasonable grounds of challenge. Mr. Henderson said he believed that the focus should be on arbitral independence and impartiality, and if these are questioned, then to disclose.

 

Costs

Ms. Ahn and Ms. Koh discussed the Singapore law on conditional fees. They noted that it was a positive move towards reworking costs arrangements. Ms. Koh explained that it provides more options to parties and allows firms to take up good cases where the clients may not have the funding to afford premium legal services otherwise. She also noted that third party funding is critical given the current issues of cash flow. Ms. Ahn observed that hybrid and damages-based agreements were also worth considering as possible avenues.

 

Concluding Thoughts on Innovation

The panelists ended with their brief thoughts on what should be the focus of innovation moving forward. Ms. Ohara wished for more active communication and commitment of the arbitrator at the earlier stages of proceedings, where questions can be asked. Ms. Koh urged for a focus on good and equal conduct of the parties, referring to LCIA Rules 18.5 and 18.6. Ms. Kalnina hoped for more efficiency and less procedural complexity, with quicker arbitrations and awards. Mr. Jana looked to further taxonomical and legislative work, particularly in technology and dispute resolution. Mr. Henderson suggested a reframing of how we look at resolving disputes, in terms of mediation and otherwise. Ms. Ahn concluded that we should focus on making arbitration cheaper, via shorter submissions and less bifurcation. She further advocated the use of tribunal-appointed experts instead of party-appointed “hired guns” and the use of virtual hearings to replace in-person hearings altogether. The panel was in agreement that the focus of innovation should be on efficiency of arbitration.

 

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2022 Balkan Arbitration Conference Recap: Balkan-Related Panels

Sun, 2022-11-13 01:37

On 29-30 September 2022, the second annual Balkan Arbitration Conference (“BAC 22”) – was held in Tirana, Albania. The Conference is the first arbitration conference for the Balkan region as a whole. Its purpose is to provide a forum to help build cooperation and develop the use and practice of arbitration in the Balkan region. In addition, it aims to help create closer links between practitioners and arbitration users within the region. A thread running through a number of the panels at the Conference was the unique perspectives and insights brought by practitioners from the Balkans to key issues in international arbitration. This post highlights this cross-cutting theme, to highlight Balkan perspectives on the assessment of damages, enforcement, and investment treaty arbitration.

The organising committee consisted of James Hayton (LK Law, London) (Chair), Klentiana Mahmutaj (Red Lion Chambers, London), Korab Sejdiu (Sejdiu & Qerkini, Prishtina) and Dr. Jola Gjuzi (Kalo & Associates, Tirana). Having been forced to hold the first iteration online because of COVID back in July 2021, the organisers were delighted this year to be able to hold the Conference in-person, in the Balkan region. The location of this year’s Conference inspired many of the focussed presentations, which as noted above drew on the unique contributions to be made to the field of arbitration by perspectives of those working on these issues in the Balkans. The Conference more broadly also developed these themes. For instance, Franz Schwarz (WilmerHale) gave the keynote speech at BAC 22, on the “Promise of Arbitration”, providing some thought-provoking insights into the problems with local courts in the Balkans, such as delay and actual or perceived corruption, and how arbitration can, albeit not always perfectly, help to solve some of these problems.

A Balkan Perspective on the Assessment of Damages

The panel moderated by Korab Sejdiu (Sejdiu & Qerkini) discussed ‘Assessment of Damages in International Arbitration: a Balkan Perspective’. The panellists were Adam Markiewicz (Quantuma), Ermelinda Beqiraj (PwC), Nikola Stambolić (Berkeley Research Group) and Antolín Fernández Antuña (Antuña & Partners). The session was organised as an accessible session for those relatively new to the quantification of damages.

Ermelinda Beqiraj provided a general introduction to the role of quantum experts in international arbitration, including providing statistics to show that there is at least a correlation (even if not a demonstrable causal link) between retaining an expert and succeeding in your damages case, with 69% of claim values awarded where the claimant has an expert but the respondent does not, versus 41% where the respondent also instructed an expert. Ms Beqiraj also demonstrated, with the aid of statistics, the common failings of parties’ approaches on quantum. She noted, for instance, that in over half of all cases tribunals had criticised one or more of the parties for a lack of evidence and substantiation vis-à-vis the damages claims – including noting their incorrect or unconvincing underlying assumptions or speculative claims. Such findings correlated with an average reduction in compensation from 53% of the amount claimed to between 30%-40%. Ms Beqiraj also noted that although tribunals are often accused of ‘splitting the baby’, and the figure of 53% average awards might superficially be viewed to support that, in reality the distribution of awards was far wider than that figure might suggest.

Adam Markiewicz discussed the main approaches to damages, being the cost approach, market approach and income approach. He also discussed the merits of using a range of approaches, rather than just one single approach, and the utility of a Monte Carlo simulation for future cash flows. Nikola Stambolić emphasised above all the importance of experts maintaining their independence and impartiality in order to avoid appearing to become a ‘hired gun’, if they are to be taken seriously by the tribunal and positively contribute to the outcome.

Antolín Fernández Antuña’s presentation focused on the legal framework for damages in international investment law, and the principle of ‘full reparation’ under customary international law, including the provisions on compensation in the ILC Draft Articles on State Responsibility. He demonstrated through examples the enormous difference which can be made to the size of awards by the choice of the date of valuation and by the methodology in calculating interest (e.g. respondent’s cost of borrowing vs. US Prime Rate).

Enforcement in the Balkans

The panel moderated by Andrew Wordsworth (Raedas) discussed ‘Balkan Enforcement: Lost Cause or Surprisingly Friendly?’, with Dalibor Valinčić (WolfTheiss), Milica Savić (Karanovic & Partners), David Premelč (Rojs, Peljhan, Prelesnik & Partners) and Zoe O’Sullivan KC (Serle Court Chambers) as speakers.

Discussion focussed on the prospects of enforcement across the Balkans region . The panel agreed that the war in Ukraine had not led to many enforcement cases in the region, despite, for example, superyachts owned by Russians having historically been a relatively common sight in the Adriatic.

Andrew Wordsworth invited the panel to consider a yacht, owned by a BVI trust, cruising the Adriatic with the (alleged) ultimate beneficial owner on board, and what prospects there might be for enforcement actions to be taken against the yacht. There was unanimous agreement that enforcement would be possible in theory but that the difficulties would lie in the evidence and the evidential thresholds adopted by the courts. Zoe O’Sullivan KC explained that it would be sufficient under English law, before an English court, to show a good arguable case, on an interim injunction application, that the asset belongs to the respondent, and that the standard of proof ultimately, for actual enforcement, would be on the balance of probabilities. Panellists noted that English law takes into account complex corporate or trust structures and, where appropriate, finds that the assets are held as nominee for the “real” owner without requiring direct proof of an ownership link.

Dalibor Valinčić explained that in the Balkans, courts tended to be far more formalistic, so that circumstantial evidence such as, e.g. Instagram pictures of children of the alleged ultimate owner on the yacht, would probably not suffice. Milica Savić also noted that getting an interim order urgently in some jurisdictions in the Balkans is virtually impossible and, even when it does happen, it takes far too long, destroying the whole point of getting the order.

Looking to the future, the panel agreed that the biggest change required is to make judicial enforcement proceedings faster. David Premelč noted that in Slovenia the judiciary are paid very poorly, which results in many talented lawyers not becoming judges at all but going into private practice. The panel agreed that while they had heard of judges in the region leaving the judiciary and becoming lawyers, with mixed success, they had never heard of lawyers from private practice becoming judges, in stark contrast to what Zoe O’Sullivan KC explained was the case in the English system.

A Balkan View on Investment Treaty Arbitration

The panel moderated by Paul Key KC (Essex Court Chambers) discussed ‘Investment Treaty Arbitration: the View from the Balkans’. The speakers were: Prof. Hugo Barbier (Barbier Mehtiyeva), Dr. Jola Gjuzi (Kalo & Associates), Timothy J. Feighery (ArentFox Schiff) and Enea Karakaci (Ministry of Infrastructure & Energy of Albania).

Enea Karakaci provided insight into how claims are administered by the Albanian State Advocate’s Office, and how a response to them is coordinated between the various interested departments. He explained that Albania’s Government institutions outside the State Advocate’s office had not historically understood well the nature of the State’s obligations to protect investments and how breaches of contract might result in investment treaty arbitrations and sizeable awards of compensation against the State. He said that this was a process of education in which the State Advocate’s office was engaged. Mr Karakaci also explained that Government departments had not always cooperated fully with the State Advocate’s office, though this was now changing. He also explained that an area for future improvement was the way in which claims are dealt with when they are raised, with better coordination being needed between the various interested organs of the State.

Tim Feighery spoke about his experience of handling investment treaty disputes for the United States of America as a lawyer in the State Department. He described how when a claim comes in it is as if ‘an alarm goes off in the building’ and it is ‘a shock’. After the claim is distributed to interested departments and they are given time to consider it, the State Department calls in representatives of the various interested departments to coordinate the Government’s position. Mr Feighery also spoke of the three principles on which a rational investment treaty policy should be based – balance, discipline and consistency – which the State Department also tried to adopt in its work on investment claims.

Prof. Hugo Barbier focused on UNCITRAL Working Group III, which is examining the ability of shareholders to recover in investment treaty arbitration for losses which, under many national laws, would be recoverable only by the company.

Dr Jola Gjuzi addressed the role of sustainable development in international investment law. Dr Gjuzi explained that the concept is increasingly present in the new generation of international investment agreements (IIAs) and highlighted how the international and domestic jurisprudence on sustainable development illustrate the obligation to continuously integrate and balance three interdependent and potentially competing objectives of economic development, environmental protection and social welfare, and legally speaking, of norms addressing economic protection, environmental protection and social welfare (human rights). She stated that the private interests vs. public interests debate inherent in the fair and equitable (FET) standard of protection reflects a quest for integration and balance. Having reviewed investor-state arbitral awards on the interpretation of old generation and new generation IIAs, she identified cases where integration and balancing of competing objectives are successful to the extent that they are reached through the application of principles of law such as good faith, due process, non-discrimination and proportionality.

Conclusion

The 2022 Balkan Arbitration Conference proved to be the event that the region was missing, where professionals and businesses can meet up and align efforts in promoting arbitration. Overall, the regional interest in arbitration is on the rise and the region’s dysfunctional and slow judicial systems tend to prove a ripe environment for arbitration to flourish.

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Concluding an Arbitration Agreement via Means of Remote Communication under Polish Law: A Short Guide for Practitioners

Sun, 2022-11-13 00:35

The COVID-19 pandemic made us realize that a lot of business can be conducted remotely, and that drafting contracts does not have to involve physical signatures on the same documents by all the parties involved. This progress, of course, has not bypassed arbitration. In this post, we will look at how to effectively conclude an arbitration agreement under Polish law using modern forms of remote communication.

Crucial to the matter at hand is Article 1162 of the Polish Code of Civil Procedure (“CCP”). In accordance with the aforesaid provision, an arbitration clause should be made in writing (Article 1162 (1) CCP), although the requirements concerning the form of an arbitration clause will also be met if the clause is included in letters exchanged between the parties or statements made by means of remote communication which enable their content to be recorded. Moreover, a reference in an agreement to a document containing a provision to bring a dispute before an arbitration tribunal complies with the requirements concerning the form of an arbitration clause if such an agreement is made in writing and the reference incorporates that clause into the agreement (Article 1162 (2) CCP).

 

Arbitration Agreement Concluded “In Writing”

As far as the term “in writing” is concerned, in practice we can refer to two scenarios.

Firstly, the arbitration agreement is concluded by means of a physical “wet-ink” signature, as used for centuries.

Secondly, a document containing an arbitration clause is signed with a qualified electronic signature. This finding is justified by the fact that, under Polish law, a qualified electronic signature is recognised as equal to a physical signature (Article 781 of the Polish Civil Code). Exactly what is meant by a “qualified electronic signature”, and what requirements apply to it, are addressed in the Regulation (EU) No. 910/2014 of the European Parliament and of the Council of 23 July 2014 on electronic identification and trust services for electronic transactions in the internal market and repealing Directive 1999/93/EC (the “eIDAS Regulation”).

A qualified electronic signature is based on a certificate issued by (public and/or private) qualified trust service providers. The list of qualified trust service providers in the European Union is published by the European Commission (European Union Trusted List). A signature that meets all requirements in this regard is, for example, the well-known Docu Sign.

It is worth mentioning that, in accordance with Article 25(3) of the eIDAS Regulation, a qualified electronic signature issued by a trust service provider from any of the EU countries is sufficient to comply with the electronic form requirement under Polish law and may be used to maintain the equivalence between electronic and written forms of the declaration of intent. Therefore, if your counterparty uses a qualified electronic signature registered in any EU country and entered on European Union Trusted List, you can conclude an arbitration agreement with them without any worries.

 

Arbitration Agreement Concluded by Means of Remote Communication

Article 1162(2) of the CCP liberalises the requirements regarding the “in writing” form of an arbitration agreement, allowing such clause to be concluded via letters exchanged between the parties or statements made by means of remote communication which enable their content to be recorded.

The notion of “means of remote communication” applies to simple electronic forms (without the parties’ signatures), such as telefax, telegram, e-mail or short text messages – this in light of both CCP as well as the 1958 New York Arbitration Convention, which Poland is a party thereto. The Polish Supreme Court also took the position that an electronic signature is not required for exchange of electronic correspondence. It is permissible to conclude an arbitration clause also in “simple” electronic form, i.e., not requiring that the clause be accompanied by a secure electronic signature verified with a valid qualified certificate – subject, of course, to the condition that the technical means enable the content of the declarations of intent to be recorded (see the decision of 28 November 2018, case no. III CSK 406/16).

However, two important exceptions should be pointed out in this regard.

Firstly, Article 1162(2) of the CCP does not apply when the arbitration agreement is concluded with consumers. An arbitration clause covering disputes arising from contracts to which a consumer is a party may be executed only after the dispute has arisen and must be made in writing (within the meaning of Article 1161(1) CCP, i.e. with a wet-ink or qualified electronic signature).

Secondly, conclusion of an arbitration agreement by means of remote communication may not be sufficient in the case of so-called arbitration clauses by reference.

In accordance with the second sentence of Article 1162(2) of the CCP, reference in an agreement to a document containing a provision to take a dispute before an arbitration tribunal, complies with the requirements concerning the form of an arbitration clause if such agreement is made “in writing” and there is a reference incorporating that clause into the agreement (the so-called arbitration clause by reference). In accordance with the views presented by Polish legal scholars, “in writing” is when an agreement containing a reference to an arbitration clause included in another document was concluded with handwritten signature or a qualified electronic signature. In other words, there is no possibility to conclude arbitration agreement by reference included in a statement made by means of remote communication.

 

Is It Safe?

A party may file a motion to set aside an arbitral award issued in Poland if, inter alia, there was no arbitration clause, or an arbitration clause is void, invalid or has expired in accordance with relevant law. For the same reasons, the court may refuse to recognize or confirm enforcement of a judgment of an arbitration court issued abroad.

It is acknowledged that invalidity of an arbitration clause arises, inter alia, when the proper form has not been complied with in accordance with Article 1162 of the CCP. In this regard, an arbitration clause may be perceived as invalid e.g., if it is included in an audio / videophone recording exchanged between the parties or the document with an arbitration clause does not contain the parties’ signatures (in any form) or has not been exchanged by means of remote communication which enable its content to be recorded.

That being said, considering the liberalized requirements for conclusion of an arbitration agreement as well as the wide interpretation of the notion “in writing”, there are no potential obstacles under Polish law to enforcement of arbitral awards if the arbitration agreement is concluded, for example, by qualified electronic signature or via e-mails.

Moreover, it should be noted that, under Article IV.1(b) of the 1958 New York Arbitration Convention as well as Article 1213(1) of the CCP, it is required to enclose the original or an officially certified copy of the arbitration clause with the party’s petition to obtain recognition and/or enforcement of an arbitral award. If the arbitration agreement is concluded via telegram or e-mail, some may say that such original or certified copy of the arbitration clause does not exist. In this regard, the Polish Supreme Court has stated that the requirements for presentation of an arbitration agreement in Article IV(1) must be considered taking into account the form in which the agreement may have been concluded. The Supreme Court emphasised that, in the event the arbitration agreement is concluded via e-mail, there is no “original” thereof within the meaning of Article IV(1)(b) of 1958 New York Arbitration Convention; in such a case, supplying the court with written confirmation of the agreement (e.g., print-out of e-mails) is sufficient (see the decision of 13 September 2012, case no. V CSK 323/11).

 

Final Remarks

The Polish rules on the conclusion of arbitration agreements move with the times and meet the current business needs. So, if you and your counterparty have a qualified electronic signature or e-mail, you can effectively conclude an agreement containing an arbitration clause without ever meeting each other.

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Australian Arbitration Week Recap: The Great Debate – In an Emergency, Do You Arbitrate or Litigate?

Sat, 2022-11-12 01:08

The annual “Great Debate” took place on the fourth day of Australian Arbitration Week. This event, organised with the support of hosting sponsor Corrs Chambers Westgarth, has now become a mainstay of Australian Arbitration Week, and involves a lively comedic debate between Team Arbitration and Team Litigation about which method of dispute resolution should reign supreme.

This year, the topic for the Great Debate was: In an emergency – do you arbitrate or litigate? The debate was both entertaining and informative, as each debater attempted to win audience votes through their knowledge of the law, legal-themed jokes and by making well-meaning jabs at the other side.

The debate was moderated by Julian Morrow a lawyer-turned-comedian known for The Chaser, who did an excellent job of keeping the debaters on their toes and the audience entertained.

Team Arbitration comprised of:

Team Litigation comprised of:

 

Team Arbitration

Erika Williams kicked off the event by saying that arbitration is like health care but with private health insurance. You can choose the best hospital (the arbitral institution) and a specialist surgeon who is qualified to treat your specific ailment (the specialised arbitrator). Arbitration is therefore the best option in an emergency because you will get tailored, efficient and quick service. Ms Williams gave an overview of the procedure for an application for emergency interim measures of protection under the 2021 ACICA Arbitration Rules. She highlighted that ACICA shall use its “best endeavours” to appoint an emergency arbitrator within 1 day and the emergency arbitrator’s decision is to be made within 5 days. Moreover, Ms Williams argued that applying for interim relief through arbitration is free from the burden of court rules and forms.

Michael Earwaker first spoke about the familiar experience of advising distressed clients about the benefits of emergency arbitration. He also discussed the joy of finding an arbitration clause hidden within a multi-tiered dispute resolution clause in the contract. Mr Earwaker stressed that by choosing arbitration as the mechanism for resolving disputes, including for interim relief, the client has already won because they aren’t at risk of entering a multi-year process before the courts, which could include appeals before a decision is final. Mr Earwaker concluded by saying that arbitration is as respected as the courts.

Robert Heath KC described going to court as akin to playing Wheel of Fortune, as you never know what you’re going to get. He spoke about the benefits of arbitration in avoiding the idiosyncrasies and rigidity of the court system, and the ability to specifically select an appropriately qualified arbitrator to address the factual circumstances of the dispute. Mr Heath explained how arbitrators are efficient and ‘match-fit’. He also argued about the benefits of avoiding public knowledge of private, commercial disputes.

In closing, Kala Campbell provided the perspective of junior lawyers and the benefits they experience when being involved in emergency arbitrations. She pointed out the major benefit of being able to enforce interim arbitration measures in a significant number of jurisdictions under the UNCITRAL Model Law on International Commercial Arbitration (with amendments as adopted in 2006). Ms Campbell concluded her argument by stating that arbitration has refined and improved all of the best aspects of litigation with none of the drawbacks.

 

Team Litigation

Matthew Critchley began the case for Team Litigation with a spirited retort by emphasising the benefits of resolving an emergency dispute in court, with its systems that have been in place for generations. He explained how the courts have everything you need in an emergency. There is never a question of whether the decision is binding or enforceable, courts have a range of emergency protections and a duty judge is always available to hear an urgent case.

Elizabeth Bennett SC spoke about the coercive power of the courts and their ability to enforce compliance, including through imprisonment for contempt of court. She argued that the public nature of court hearings promotes efficiency and high quality legal argument, particularly for emergency measures. Ms Bennett also discussed the hidden costs of arbitration and how judges have a greater public interest in seeing a dispute be resolved swiftly.

Raj Pillay spoke about the public benefits of litigation, the creation of precedent, and the special place that litigation holds in the public consciousness. He also argued about the benefits of the appeal process provided by litigation, which allows parties (and decision-makers) to correct errors arising from the first instance.

In closing, Mark Wilks explained that it was very common for parties to an arbitration to end up in court when challenging the scope of an arbitration clause, or the jurisdiction of a tribunal. This means that all the positives of emergency arbitration can easily be lost if a party is unhappy and approaches the court as a result. He argued that it was better to cut out the “middleman” and proceed straight to litigation as the court system was in the best position to resolve disputes in a crisis.

 

Factors to consider in the arbitration versus litigation debate

As discussed in the recently published Corrs Chambers Westgarth Arbitration Guide 2022, to determine if an emergency arbitration proceeding should be preferred to seeking urgent relief before a court, the following should be considered:

  • Speed: Consideration should be given to how quickly urgent relief can be granted. This will depend on the jurisdiction as the speed of court proceedings varies widely between jurisdictions. One benefit of emergency arbitration is the often short time limits specified by institutional rules for the issuance of a decision.
  • Cost: The cost of emergency arbitration can be a deterring factor. The costs vary between institutions. However, the rules usually require the requesting party to pay fixed fees to cover the institution’s administrative expenses and the emergency arbitrator’s fees and expenses. For example, an emergency arbitration under the 2021 ACICA Arbitration Rules requires payment of an emergency arbitrator fee of A$10,000, with a further A$2,500 application fee payable to ACICA.
  • Confidentiality: The fact that the arbitral process is typically confidential may be a decisive factor in preferring emergency arbitration over litigation. Indeed, this is noted as one of the key reasons why parties choose to arbitrate.
  • Ex parte relief: Courts may be the only viable option for parties seeking interim measures without giving notice of the application to the other party. If there is a risk that a party is likely to dissipate or divest assets or destroy information, the secrecy and urgency of an ex parte application to a court will best preserve the assets or information.
  • Third parties: The inability to bind third parties might be an important factor in choosing to seek urgent relief before a court rather than pursue emergency arbitration. As arbitration only binds the contracting parties, the arbitrator has no power to compel non-contracting parties to comply with interim orders. This is a significant disadvantage where for example a party needs to seek a freezing injunction against accounts held at third-party banks.
  • Enforcement and compliance: While orders for interim relief granted by emergency arbitrators will be contractually binding on the parties to the arbitration, there are limited avenues available to enforce compliance. In addition, it is currently uncertain in many jurisdictions whether an interim decision by an emergency arbitrator, in the form of an order or an award, can be enforced as an “award” under the New York Convention.

 

Conclusion

Ultimately, the audience vote was conducted and victory was declared for Team Litigation. Kala Campbell received the biggest laugh of the night and the award for best individual speaker.

We note that this recap was a collaborative effort between litigators and arbitrators. Any accusations of bias will be swiftly arbitrated/litigated once we decide which option is better.

 

This concludes our coverage of Australian Arbitration Week 2022. More coverage of Australian Arbitration Week is available here.

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Justice versus Finality: Is it Time to Revisit the Rules on the Revision of Arbitral Awards?

Thu, 2022-11-10 18:55

One of the great advantages of arbitration is that it is a “one-shot” dispute resolution mechanism that does not allow for a series of appeals. Indeed, many users stress the finality of awards and the lack of an appeals mechanism as a valuable characteristic of arbitration. However, there may be situations where the “one shot” misses the mark, leading to a fundamentally unjust award. This may, in particular, be the case if a party is found to have acted fraudulently during the proceedings and to have obtained a favourable award as a result (e.g. when criminal courts subsequently find that a key piece of evidence that influenced the award was forged). More generally, the post-award discovery of a fact which would have impacted on the award always raises the question whether the award should be allowed to stand.

In litigation, the solution to such situations is revision, which is a remedy that has existed in many jurisdictions for a long time. Revision is an extraordinary remedy based on the alleged discovery of new facts and aimed at the amendment of a final and binding decision in light of these new facts, usually by the original adjudicator. In arbitration, the remedy of revision is less developed. With this post, we intend to give an overview of the existing legal framework in national arbitration laws and institutional rules, and to analyse whether it is time for the arbitration community to undertake a renewed effort to regulate the revision of arbitral awards.

 

The existing framework in national arbitration laws

National arbitration laws take different approaches to the revision of arbitral awards. Jurisdictions that have adopted the UNCITRAL Model Law on International Commercial Arbitration of 1985 (“Model Law“), such as e.g. Germany, Singapore, and Denmark, generally do not have rules on revision. This is due to the fact that the Model Law itself only provides for the setting aside of arbitral awards and does not expressly contemplate revision as an alternative remedy.

Incidentally, the travaux préparatoires of the Model Law show that the lack of a revision mechanism was a deliberate decision. The drafters considered establishing a separate set-aside ground with longer deadlines “for such cases as fraud or false evidence which had materially affected the award” (see here, p. 36, para. 299). However, the drafters ultimately decided against such a regime because of the “need for speedy and final settlement of disputes in international commercial relationships” (see here, p. 36, para. 300).

Given the absence of an express rule under this regime, the revision of an award by the arbitral tribunal is arguably not possible because the tribunal’s mandate is exhausted once the final award is rendered. Moreover, the discovery of a new fact does not necessarily give rise to a ground for setting aside the award either. Nonetheless, this does not necessarily mean that an award will always be enforceable no matter what information is uncovered after the award was rendered. For example, in Germany, if it can be proven that a party obtained an award in a fraudulent way, the award debtor may be entitled to an order prohibiting the award creditor from enforcing the award, or requiring the award creditor to repay what it has already received in satisfaction of the award. In other words, under German law, the award debtor has a substantive right to not be subjected to the enforcement of an award that was obtained in a fraudulent manner.

Conversely, in jurisdictions that expressly provide for the revision of arbitral awards (like Switzerland, the Netherlands, Spain, and France) some broad similarities in the design of the remedy can be observed. Thus, in general, only previously unknown facts which could not have been discovered during the arbitral proceedings can provide grounds for revision (cf. Article 190a(a) Swiss PILA, Article 1068(c) Dutch Code of Civil Procedure, Article 510(i) Spanish Civil Procedure Act (in conjunction with Article 43 of the Spanish Arbitration Act), Sections 1502, 595(2) French Code of Civil Procedure). Moreover, a request for revision can be filed if an award was influenced by criminal acts or by false evidence (cf. Article 190a(b) Swiss PILA, Article 1068(a)-(b) Dutch Code of Civil Procedure, Article 510(ii)-(iv) Spanish Civil Procedure Act (in conjunction with Article 43 of the Spanish Arbitration Act), Sections 1502, 595(1), (3)-(4) French Code of Civil Procedure), a situation which was present e.g. in a 2009 Swiss case that was previously discussed on this blog.

At the same time, however, there are also important differences. Some jurisdictions provide for revision proceedings to be conducted before the original tribunal and only refer the matter to the courts if the original tribunal cannot be reconstituted (cf. Article 1502 of the French Code of Civil Procedure). Other regimes provide for an application to the courts and then allow the courts to remit the award to the original tribunal for reconsideration (or to set the award aside itself) (cf. Section 68(2)(g) and (3)(a) of the English Arbitration Act, in relation to fraud). Conversely, in other jurisdictions, applications are only heard by domestic courts which have the power to revoke the award if the requirements are fulfilled (cf. Article 1068 of the Dutch Code of Civil Procedure, Article 516 Spanish Civil Procedure Act (in conjunction with Article 43 of the Spanish Arbitration Act)).

Also, there are considerable differences insofar as time limits are concerned. While Spanish and Dutch law require an application to be made within three months from the discovery of the ground for revision, French and Swiss law provide for 2‑month and 90‑day time limits, respectively. Moreover, there are also varying absolute time limits. Thus, in Switzerland, a request for revision is generally excluded after 10 years from the date when the award became legally binding, whereas Spain imposes an absolute time limit of 5 years. In yet other jurisdictions, laws are silent on this matter.

 

The existing framework in arbitration rules

In contrast to domestic law, revision is generally not addressed in the rules of arbitral institutions. Indeed, none of the major institutions for international commercial arbitration (such as the ICC, SIAC, HKIAC, LCIA, SCC or SAC) have included a provision on revision in their rules. That said, one major institution providing for revision in its rules is ICSID. Under Article 51 of the ICSID Convention, an application for the revision of an ICSID award may be brought, “on the ground of discovery of some fact of such a nature as decisively to affect the award, provided that when the award was rendered that fact was unknown to the Tribunal and to the applicant and that the applicant’s ignorance of that fact was not due to negligence“. The applicable time limits are relatively strict, requiring the application to be made within 90 days after the discovery of the fact, and in any event within three years from the date on which the award was rendered. If possible, the decision on revision shall be rendered by the tribunal that rendered the original award.

 

Should the arbitration community revisit the issue of revision?

The above analysis shows that approaches to revision differ widely. Some jurisdictions do not provide for any set of rules for revision, while others regulate revision in a detailed manner. Where there are no such rules, courts may be required to fill the gap, which can lead to uncertainty (especially if there is not a lot of case law). Furthermore, among those jurisdictions with detailed rules on revision, there are marked differences in approach, such as with regard to the question whether the revision proceedings are to be brought before a court or the original tribunal.

Against this background, one may wonder whether the issue of revision should be revisited in future discussions concerning potential amendments to the Model Law. The drafters’ initial decision to not include a rule on revision so as to favour the finality of arbitral awards certainly made sense at the time. However, experience has shown that there are cases in which new relevant facts are uncovered belatedly. Such cases are exceptional, and cases in which the new evidence could not have been uncovered during the proceedings is even rarer. Nevertheless, rather than leaving it to domestic courts to find a solution for these extraordinary situations, it would ensure greater legal certainty to have a clear set of rules from the outset. Moreover, purposefully formulating these rules in a very narrow fashion would ultimately contribute to the finality of arbitral awards.

Further, one may well wonder whether arbitral institutions should not step in to “fill the gap” by adding express provisions on revision in their rules. However, the general reluctance of (major) arbitral institutions to address revision is understandable if one considers that there is not always a gap to fill because the applicable lex arbitri may indeed provide for a revision regime. And if it does, the domestic rules will often be mandatory, meaning that institutional rules cannot opt out of or modify such rules. Accordingly, the safest option for institutions may indeed be to not address the issue at all.

At the same time, not addressing the issue in institutional rules may leave a lacunae if the lex arbitri provides for revision proceedings before the original tribunal. In particular, this may mean that there are no clear rules on the payment of arbitrator fees for the revision proceedings (e.g. how the fees are calculated, which party pays the advance on fees, etc.). Against this background, institutions should at least consider adding rules that regulate these specific issues in case the lex arbitri allows for the revision of awards by the original tribunal.

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Australian Arbitration Week Recap: Hot Issues Involving Technology Arbitration

Thu, 2022-11-10 00:10

On the second day of Australian Arbitration Week, DLA Piper’s office in Melbourne, Australia, hosted a panel addressing “Hot Issues Involving Technology Arbitration”. The panel comprised:

  • Gowri Kangeson (Partner in DLA Piper’s Litigation and Regulatory, and Arbitration Groups);
  • Tim Lyons (Partner in DLA Piper’s Intellectual Property and Technology Group); and
  • Jason Choi (Senior Associate in DLA Piper’s Litigation and Regulatory, and Arbitration Groups).

 

The Current State of Technology Arbitration

Mr Choi opened the discussion with an overview of what is happening in technology arbitrations right now.

Mr Choi noted that technology had become an ever-present part of everyday life. Indeed, with the advent of technologies like blockchain, Web3 and cryptocurrency, one could say we are entering a new era of technology. This new era has precipitated a growth in technology-related arbitrations over the past decade. Mr Choi also highlighted that technology is borderless, and the issues stemming from technology disputes are often very complex. These factors make such disputes ideal for resolution by arbitration.

 

The Origins and Types of Technology Disputes

Mr Lyons addressed the panel topic as a front-end lawyer involved in negotiating and implementing technology-related contracts. In particular, Mr Lyons provided insights on the circumstances where technology-related disputes arise and the types of those disputes.

On the origins of disputes in the technology sector, Mr Lyons noted that disputes often arise out of investments by technology companies; mergers and acquisitions and the associated due diligence; and intellectual property (IP) ownership. However, the key message is that technology disputes are not limited to the technology sector. All sectors involve technology, which inevitably increases the prospects of technology-related disputes. Mr Lyons highlighted the following examples:

  • Joint venture agreements where technology is developed by more than one entity;
  • The use of embedded networks and controls over power to smooth over energy grids in the energy and renewables sector;
  • The vulnerability of the massive amounts of data collected and stored by the healthcare and biotechnology sector (an issue exemplified by recent high-profile data breaches in Australia, for example, see here); and
  • The use of algorithms relying on data provided by sensors and cameras to manage roads and construct “smart buildings”.

On the types of disputes likely to be seen in the technology context, Mr Lyons emphasised their varied nature. For instance, disputes are common where technology licences are afoot, and the parties disagree over the fees payable under the licence. Mr Lyons also mentioned he often witnesses disputes arise in the information technology industry where projects are delayed or a services provider fails to meet agreed service levels. Finally, the growth of the internet of things and the centrality of data privacy have led to claims where third parties manage an entity’s data, and the entity is forced to bring a claim against that third party following data breaches.

 

Common Characteristics of Technology Disputes

Ms Kangeson outlined the characteristics of technology disputes that all potential participants should be aware of.

The first key point Ms Kangeson raised was complexity. Technology disputes frequently involve highly complex technical and factual issues. For example, the dispute may concern ongoing conduct, conduct over an extended period of time or a contract with no clear end goal or product. These factors contribute to two further notable features: a reduced chance for settlement and the difficulty in assessing damages. Ms Kangeson noted that individuals involved may try to shift blame and that where the end goal is unknown, there is no clear point from which to assess damages.

Ms Kangeson also noted that some disputes involve the interaction of various technologies of differing age and sophistication. To alleviate the potential for this and other vague terms causing disputes, Ms Kangeson noted that front-end lawyers should focus on creating certainty around the goals of a contract and clear terms consistent with those goals.

Finally, on the method of dispute resolution, Ms Kangeson reinforced Mr Choi’s comment that arbitration was well-suited to handling such large and complex disputes. However, Ms Kangeson did point out that parties may prefer binding expert determination, but only where there were distinct technical issues to be resolved.

 

Why use arbitration?

Ms Kangeson and Mr Choi addressed the overarching question, “why would parties to a technology dispute prefer arbitration over litigation?”.

Mr Choi began by noting that arbitration users, in a 2017 Silicon Valley Arbitration and Mediation Center survey, have stated their concern that courts are more expensive than arbitration and do not have the same access to technology-specific expertise among adjudicators. In connection with these concerns, Mr Choi focused on the flexibility available to parties to an arbitration. They are free to choose the forum and arbitrators based on their preference for expertise and any neutrality concerns. These benefits are buttressed by the accessibility of arbitration precipitated by the widespread adoption of technology in the conduct of arbitrations. Indeed, Mr Choi proffered the hypothetical scenario where parties embed an arbitration clause within a smart contract that specifies the arbitrator to be appointed and the forum of the arbitration. Such a clause could be automatically executed in the event of a breach.

Mr Choi also highlighted the benefit of emergency procedures, such as those found in the 2021 ACICA Arbitration Rules. For example, in a dispute concerning climate change where the use of green technology is in issue and where there is potential imminent harm to the environment, a party may take advantage of the emergency procedures to obtain urgent interim relief to prevent the harm from occurring.

Ms Kangeson took up the discussion by noting the opportunity for parties to avail themselves of fast-track timelines through special rules, such as the recently updated ACICA Expedited Arbitration Rules. She also noted the speed, efficiency and cost benefits available to parties to arbitrations. However, Ms Kangeson cautioned that such benefits are largely dependant on parties effectively using the procedural flexibility available to them to expeditiously conclude a dispute.

On confidentiality, Ms Kangeson pointed out that many parties to a technology dispute are anxious to keep confidential IP and other trade secrets out of the public domain. To that end, arbitration offers the ability to maintain that confidentiality. Further, any political considerations that often arise in public procurements can also be kept confidential.

Arbitral awards are also final and able to be enforced globally under the New York Convention. In this context, Ms Kangeson also pointed out that parties to technology arbitrations can seek most forms of relief, including damages and injunctive relief.

In respect of potential downsides to arbitration, Ms Kangeson and Mr Choi noted that parties should be aware of potential jurisdictional challenges, especially where certain countries prohibit the arbitration of IP disputes. Parties should also be aware that it is up to them to take advantage of arbitration’s benefits through the judicious preparation of their case and management of the procedural timetable.

 

Future Developments

To cap off the discussion, Ms Kangeson and Mr Lyons canvassed future trends to be aware of in technology arbitrations and disputes. Ms Kangeson highlighted a spate of recent decisions of UK and Singapore courts1) D’Aloia v Person Unknown & Ors [2022] EWHC 1723 (Ch); Tulip Trading Ltd v Bitcoin Association for BSV & Ors (Rev 1) [2022] EWHC 141 (Ch); Sally Jayne Danisz v Persons Unknown and Huobi Global Ltd (T/A Huobi) [2022] EWHC 280(QB); CLM v CLN and Others [2022] SGHC 46 jQuery('#footnote_plugin_tooltip_42420_30_1').tooltip({ tip: '#footnote_plugin_tooltip_text_42420_30_1', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], }); recognising property rights over cryptocurrency. These decisions open the way to potential future arbitral decisions granting interim relief over cryptocurrency. Ms Kangeson also highlighted the potential for arbitrations relating to non-fungible tokens, for example, the decision in Soleymani v Nifty Gateway LLC [2022] EWHC 773 (Comm).

Regarding trends in arbitration specifically, Ms Kangeson discussed the growth of blockchain-based arbitration platforms. However, Ms Kangeson cautioned against the immediate adoption of these methods, given their lack of flexibility in choosing arbitrators and forums.

Mr Lyons raised the use of arbitration in self-executing smart contracts, noting that such contracts are theoretically ill-suited to arbitration as they execute based on the verified occurrence of certain conditions. Mr Choi added that arbitration could be used where external factors interfere in those conditions, through the use of connectors linking the blockchain to off-chain events, requiring adjudication by a human arbitrator.

Finally, Mr Lyons briefly raised the potential for Web3 and the use of AI to up-end the resolution of disputes and the types of disputes referred to arbitration. These trends may raise interesting questions regarding the ownership of property and causality, respectively.

 

More coverage from Australian Arbitration Week is available here.

References[+]

References ↑1 D’Aloia v Person Unknown & Ors [2022] EWHC 1723 (Ch); Tulip Trading Ltd v Bitcoin Association for BSV & Ors (Rev 1) [2022] EWHC 141 (Ch); Sally Jayne Danisz v Persons Unknown and Huobi Global Ltd (T/A Huobi) [2022] EWHC 280(QB); CLM v CLN and Others [2022] SGHC 46 function footnote_expand_reference_container_42420_30() { jQuery('#footnote_references_container_42420_30').show(); jQuery('#footnote_reference_container_collapse_button_42420_30').text('−'); } function footnote_collapse_reference_container_42420_30() { jQuery('#footnote_references_container_42420_30').hide(); jQuery('#footnote_reference_container_collapse_button_42420_30').text('+'); } function footnote_expand_collapse_reference_container_42420_30() { if (jQuery('#footnote_references_container_42420_30').is(':hidden')) { footnote_expand_reference_container_42420_30(); } else { footnote_collapse_reference_container_42420_30(); } } function footnote_moveToReference_42420_30(p_str_TargetID) { footnote_expand_reference_container_42420_30(); var l_obj_Target = jQuery('#' + p_str_TargetID); if (l_obj_Target.length) { jQuery( 'html, body' ).delay( 0 ); jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight * 0.2 }, 380); } } function footnote_moveToAnchor_42420_30(p_str_TargetID) { footnote_expand_reference_container_42420_30(); var l_obj_Target = jQuery('#' + p_str_TargetID); if (l_obj_Target.length) { jQuery( 'html, body' ).delay( 0 ); jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight * 0.2 }, 380); } }More from our authors: International Investment Protection of Global Banking and Finance: Legal Principles and Arbitral Practice
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Interviews with our Editors: In Conversation with Caroline Kenny KC

Wed, 2022-11-09 00:09

Caroline Kenny KC is a barrister, mediator, and arbitrator. She has over 30 years’ experience in commercial disputes. In 2008 she was appointed as Kings’ Counsel and has since been recognised as a Chartered Arbitrator – the only female Chartered Arbitrator in Australia. Caroline’s arbitration experience therefore spans across various roles within international commercial arbitration proceedings, including as counsel, sole arbitrator and presiding arbitrator. These roles spread across numerous jurisdictions. Caroline’s offices are based in Melbourne, Australia and London, England.

In addition, Caroline has held various teaching roles at several prestigious institutions across the globe and has and continues to be involved in many boards and committees. Caroline sits on the Board of Trustees of the London-based Chartered Institute of Arbitrators.

Caroline, it is an absolute pleasure to have you here with us today at the Kluwer Arbitration Blog!

 

  1. To commence, could you please briefly introduce yourself and outline how you came to establish your career within the international arbitration space?

Initially I was appointed counsel in international arbitrations and enjoyed it so much that I decided to take a course in International Commercial Arbitration (‘ICA’). I completed the CIArb Diploma Course at Oxford and then the Accelerated Route to fellowship Course in Chile, Santiago. I now regularly sit as an arbitrator in ICA.

 

  1. Currently, there has been a lot of discussion about how arbitration as a form of dispute resolution has changed over the years. Given your extensive arbitration experience, what would you say have been the biggest changes, in particular with regard to arbitration practice in Australia? Do you think it has changed for the better?

I think it has changed for the better because there is more transparency around the arbitration process. Arbitrators and parties are more concerned with introducing efficiencies in the way in which arbitrations are conducted. When I refer to ‘transparency’ I mean not only the debate about whether awards should be published, but other aspects of the arbitration process, such as the publication of the outcome of challenges to arbitrators and how institutions make appointments. In many ways the ICC has led the drive to more transparency by announcing its default position would be to publish awards and by publishing the name of arbitrators who are appointed. I also think that there is now more competition between institutions and parties to appoint outside ‘the club’ of well-known arbitrators. Institutions, in particular, are concerned with appointing more female and diverse arbitrators. I think the increase in competition for appointments has had a beneficial effect on increasing efficiencies in the way arbitrations are conducted and therefore, lowering the cost of ICA. One of those efficiencies, driven, of course, by the pandemic, is the move to more on-line meetings and hearings. With the improvement in on-line platforms such as Zoom and Microsoft Teams, remote hearings have proved to be very successful, and I think they will continue to be a feature of ICA.

 

  1. Impressively, you are not only qualified to practice in Australia but in New York and England and Wales, and you are a Registered Foreign Lawyer at the Singapore International Commercial Court. With this perspective, how do you think Australia differentiates itself within the arbitration arena?

The Australian Centre for International Commercial Arbitration (‘ACICA’) was established in the same year as the Hong Kong International Arbitration Centre and before the Singapore International Arbitration Centre, but as a seat, Australia has not progressed as well as those Asian seats. I think a big difference between Australia and other seats in the Asia Pacific region is that arbitration is not supported by the Australian Government in the same way as the respective governments of Hong Kong and Singapore support them. Although Australia is a bit further than other Asian seats it has much to offer in terms of a stable government, non-interventionist courts, easy enforceability of awards through Australian courts, a highly regarded judiciary, experienced arbitration practitioners, first rate facilities in which to conduct arbitrations and first-rate infrastructure to support ICA including transportation, hotels, and restaurants. I think Australia will only come out of the shadow of Hong Kong and Singapore when the Australian Government provides more support for ICA.

 

  1. In a 2021 interview with Georgia Quick in this blog, she noted that recently, Australia has had more of an opportunity to provide a known safe seat. In short, a “safe seat” refers to a legal place of arbitration that is arbitration friendly (see here and here). She then reflected on the importance of a “stable and neutral seat, and an international reputation for a strong rule of law, supported by a fair, efficient, and high-quality judicial system.” Do you think that establishing itself as a known safe seat is enough for Australia to continue growing as a seat for international arbitration? Or is there something else that needs to be done for Australia to progress and continue to establish itself as a renowned arbitration hub?

I think the Australian Government needs to support the growth of ICA in Australia, including by providing funding to ACICA, so that, among others, it can employ marketing and other consultants to market Australia and ACICA to the world.

 

  1. You are currently a Director at the Australian Centre for International Commercial Arbitration (ACICA) and the Australasian Trustee for the Chartered Institute of Arbitrators (London). What have you learnt from these roles?

ACICA is very ably assisted by its Director-General, Deborah Tomkinson, its President, Georgia Quick, and all its directors who are very experienced and knowledgeable in ICA. We are all working in various ways to improve ACICA’s profile in ICA. As for CIArb London, it continues to improve its offering to members and this is reflected in the ever increasing membership base – we currently have over 18,000 members world-wide. CIArb offers the ‘gold standard’ in all of its courses and as a board we continually strive to ensure that the courses remain current, of a high standard and easily accessible. We are also continuously updating our technology to ensure that it remains ‘state-of-the-art’ and serves the needs of members. Working on the board of both organisations is very satisfying.

 

  1. You have previously stated that one of your career highlights was when the Singapore High Court agreed with your sole ruling on an arbitral tribunal’s jurisdiction in Malini Ventura v Knight Capital Pte [2015] SGHC 225 (discussed in this blog here). Are there any other defining achievements that stand out?

For the past 10 years I have been on the organising committee for the annual international arbitration conference which takes place on the first day of Australian Arbitration Week (‘AAW’). It has been very satisfying to see an increase in the number of delegates attending the conference each year. I had the idea to rotate AAW, which used to be held only in Sydney, to Brisbane, Perth, and Melbourne and that has proved to be very successful. When I was President of CIArb I introduced the Annual Business Lunch, a series of seminars with the Federal Court of Australia and the Annual CIArb Australia Lecture. All those events have proved to be very successful, improved the membership offering to our members and have been important in raising the profile of ICA in Australia.

 

  1. In a previous interview, you noted that you were the first (at that stage, the only) female Chartered Arbitrator in Australia. How was it navigating your career as a female? How has it changed? What steps, if any, do you think still need to be taken to ensure gender diversity within arbitration?

I think the opportunities for female arbitrators have greatly improved and will continue to do so. Institutions and law firms which have the power to nominate arbitrators have moved slowly but surely away from the ‘the club’ mentality of appointments in previous years. By this I mean that in the past a small number of arbitrators continued to be appointed. Institutions and law firms now realise that to get the best results for their clients they have to tap into the enormously talented field of female arbitrators and make more diverse appointments.

 

  1. With such a successful career, what advice would you give to your younger self and / or young lawyers hoping to establish a career in international arbitration?

Take small but sure steps in your career, treat triumph and failure both as opportunities to learn, enjoy the ride and always be kind and respectful to others.

 

Thank you very much for your time, Caroline. We appreciate your valuable insights and wish you continued success!

More coverage from Australian Arbitration Week is available here.

This interview is part of Kluwer Arbitration Blog’s “Interviews with Our Editors” series. Past interviews are available here.

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Arbitration’s Age of Enlightenment? A Look Back at ICCA Edinburgh 2022

Tue, 2022-11-08 01:21

The theme of this year’s ICCA Congress was “Arbitration’s Age of Enlightenment?”, a reference to the Scottish Enlightenment, an age in which the old order was challenged, and new ideas led to innovation in several fields. The ICCA Programme Committee’s formulation of the Congress theme as a question rather than a statement is telling: its aim was not to arrive at an answer to the theme’s question per se, but to foster exchanges on the progress made in the field of international arbitration, as well as to provide a critical assessment of the areas in which further development is needed. In doing so, the Programme Committee sought views from inside and outside the arbitration community.

Speakers at the Congress addressed both current challenges and progress made in international arbitration today. In this post, we look back on the salient ideas proposed at ICCA Edinburgh 2022. We comment on views shared during the Congress on the areas within our field that could be improved, and arbitration’s successes to date.

 

A Critical Assessment of International Arbitration Today

ICCA Edinburgh 2022 provided a forum to discuss the current challenges and opportunities faced by the international arbitration community. They can be categorized as challenges within international arbitration and those outside the field that nonetheless pose a risk to international arbitration. In both cases, commentators offered some solutions, which we highlight below.

 

Within International Arbitration

The first set of challenges described by speakers were procedural in nature. When asked to enumerate their ‘Top 3 List’ of issues in international arbitration, all three speakers on the panel entitled “Progress Made/Progress to be Made – Exploring the Way Forward” listed costs and efficiency of proceedings as a major issue to be addressed, flagging the risk of international arbitration’s value proposition being severely outweighed by the increasingly prohibitive costs of the proceedings. Diamana Diawara presented the responsibility of arbitral institutions, counsel and arbitrators in acting as “cost containers” while Lucy Greenwood suggested to reframe the issue as one of overall “efficiency”. The latter proposition stands for the expectation that all players in an arbitration will perform their roles efficiently despite conflicting interests. Finally, James Hope stressed the importance of having open and honest conversations between counsel and clients, noting that some difficult cases will inevitably require more work and, consequently, higher costs. On the flip side, he wondered whether we, the arbitration community, could be “brave enough to write less”, as lengthy submissions are a big driver of costs.

Another challenge in international arbitration today is the increasing complexity of disputes. Construction disputes, for example, are often categorized as complex. International arbitrations involving states and state entities are another such example, as their needs and interests may be different from purely private parties. Complexity can also arise in disputes due to external factors, such as global pandemics and disruptions to supply chains affecting contract performance. Considering this increasing complexity, speakers discussed the growing interest in combined dispute resolution processes, such as mediation, dispute boards and conflict avoidance boards. Wolf von Kumberg argued that from the perspective of users, results were more important than process: if mixed modes of ADR yielded better outcomes, the transition to such dispute resolution models would ultimately be driven by the end users rather than external counsel. In the same vein, Elina Mereminskaya proposed that “modern law should adopt a reflexive stance on the sociolegal problems” with which it is confronted. Arguing in favour of drawing on expertise from different fields to solve complex disputes, she proposed that juridical decision-making “must reflexively include multiple perspectives on the case; it must operate in interconnected networks of knowledge”.

Finally, ICCA President Lucy Reed made a cautionary point on the increasing reliance on “non-precedential precedent” in investment treaty arbitration at the expense of substantive reasoning. Drawing parallels to artificial intelligence (AI), which has been characterized by some as the “end of enlightenment”, she encouraged us not to fall into the “international arbitration version of AI” – that is, over-reliance on a string of cases to achieve an outcome without engaging with the substance of prior awards and “relating precedent to purpose”.

The second set of challenges related to the criticisms around legitimacy in international arbitration as a dispute resolution system. On the investment arbitration side, several panelists addressed the work on ISDS reform at the multilateral level and the recent roll-back of the intra-EU investment regime. On the first point, Tom Sikora cautioned against failing to consider the perspective of investors on the various reform proposals, as this could affect their “buy-in” later on and ultimately, the success of these reforms. Alongside multilateral reform, Patience Okala offered some suggestions on bilateral and national solutions, based on extensive reforms recently undertaken in Nigeria, namely the renegotiation of loosely drafted treaty submissions (what she identified as the “root of the matter”).

Beyond ISDS, the historic lack of diversity in our field was an issue that many speakers raised as contributing to the criticisms around legitimacy in international arbitration. The issue was examined under various angles. On gender diversity, Lucy Greenwood remarked that until 2014, only approximately 10% of arbitral appointments were women. She lauded the Equal Representation in Arbitration (ERA) Pledge as the driver behind more female appointments since 2016 but noted that more work was needed to increase diversity in terms of nationality, ethnicity, sexual orientation, and age.

On regional diversity, Emilia Onyema pointed out how until recently, the international arbitration community operated “in the full knowledge of the under representation of Africans as arbitrators and counsel in international arbitration.” Progress has been made with the 2019 African Promise – built on the successful model of ERA Pledge ­– but there are more steps to be taken towards the inclusion of African practitioners in the international arbitration community, amongst other under-represented groups. James Hope brought up the need to improve linguistic diversity, often overlooked in arbitral practice. This is especially important, he noted, in light of an increase in multi-lingual students graduating from specialized graduate programs in international arbitration, who will hopefully “expand the international nature of arbitration.”

 

Outside International Arbitration

As Elina Mereminskaya noted, the legal community, and international arbitration, are part of a broader and interdependent reality. As such, they are not immune to global and political phenomena. At the outset of the Congress, Hi-Taek Shin observed the recent wave of unilateral, protectionist, and nationalistic instances by some key players on the international stage and questioned whether these trends had permeated the international arbitration arena, especially with respect to the recent backlash against investment treaty arbitration. In response to this observation, he recalled the original ‘promise’ of international arbitration as a “rational solution” to the desire to “exclude external factors that can stand in the way of a fair and efficient resolution of disputes.” He cautioned against losing sight of the common goal to enhance efficiency and legitimacy of the system. Doing so could invite more criticism and external intervention, to the detriment of international arbitration’s original promise.

 

Achievements of International Arbitration and the Way Forward

ICCA Edinburgh 2022 did not just focus on the challenges currently faced by international arbitration. It also represented an opportunity to “take stock of achievements and explore ideas to adapt to a fast-changing environment, and shape the future of international arbitration” (see “Invitation from the ICCA Presidency”).

 

Past Achievements

One of the historical achievements of international arbitration dates back to the late 19th century, as observed at the first plenary session by J. Christopher Thomas in describing how Andrew Carnegie “became a true believer in the value of international arbitration as an alternative to recourse to arms” thanks to the impact of the Alabama claims arbitration, which he regarded as “an exemplary moment in international diplomacy”. And just as arbitration served as an instrument of peace in the Alabama case, Thomas concluded, “there have been many occasions when States could have resorted to force but decided instead to pursue a more enlightened path by instead submitting their disputes to international arbitration”.

 

Present Virtues

Moving to more recent times, in the panel entitled “Arbitration’s Printing Press: Drawing the Line Between Confidentiality and Transparency”, swimming against the ’pro-transparency tide’, Anke Sessler and Paula Hodges advocated for confidentiality as a positive feature to be retained in international commercial arbitration. Sessler stressed elements such as the parties’ legitimate right to confidential proceedings – confidentiality being a strong advantage of arbitration over litigation – as well as the fact that the parties’ desire for confidentiality should outweigh the public’s right to information. She also observed that confidentiality does not substantially hinder the development of the law. A similar point was also raised at the first plenary session by Lucy Reed, who highlighted how publishing international commercial arbitration awards would not benefit the development of substantive commercial law, since most commercial arbitration disputes involve unique facts and one-off contractual relationships. Hodges then added that, starting from the position that arbitration results from a contractual agreement between private parties, “it does not seem reasonable to put the onus on those same parties to use their private process to facilitate [information sharing for common good] at the expense of preserving confidentiality”.

International arbitration, however, is not only popular among private commercial users; its use has also increased with respect to transactions involving states and state entities, as Mariam Gotsiridze pointed out in the panel devoted to “Different Perspectives”. Gotsiridze also emphasized the “unparalleled support” by states to arbitration in recent years, both as a tool to attract cross-border trade and in terms of promoting regional centres and their jurisdictions as arbitration venues.

In the immediate present, while exploring ideas to adapt international arbitration to a fast-changing environment such as the “post-pandemic world”, in the panel entitled “New Frontiers I: Arbitration in the Age of [Post-pandemic] Technology”, Ji En Lee described how, by removing “numerous psychological barriers” to the adoption of technology, the pandemic positively impacted some aspects of international arbitration proceedings. First, it led to the use of (entirely or partially) virtual hearings, which, among other things, can make arbitration less expensive, including by reducing business travel. Second, it accelerated the transition to a paperless world, with hardcopy documents creating significant logistical challenges in cross-border transactions or complex international arbitrations. Third, it introduced a “work from home” culture, which, together with the previous elements, resulted in the rise of independent practitioners and boutique firms.

 

Future Improvements

In the same panel, with a look at the future of arbitration, Kathryn Khamsica investigated the role that AI-based technology – and specifically the “dynamic situation” methodology – can play in establishing the merits of a claim in arbitral proceedings. Khamsica explained that this technology, fed with the necessary data, is able to reliably reproduce what happened in a certain situation as well as to determine what will occur in alternative scenarios. In international arbitration, she noted, it could answer “what-if” questions, which arise especially in relation to remedies to breach, with consequences that will change the “face” of arbitration, bringing an evolution in the types of arguments advanced.

As to the future of arbitrators, with the Enlightenment involving a cross-fertilisation across different disciplines, Bruno Guandalini proposed training arbitrators in bounded rationality and debiasing techniques to ensure “better and more precise” decision-making. Building on this, Janey Milligan suggested that to have an arbitration community that is “agile and willing to review its processes and adapt with the changing landscape of the disputes market” arbitration could get inspiration from the UK statutory adjudication in construction disputes. This, she contented, is very efficient due to the technical focus of proceedings and industry expertise of adjudicators, as well as the expedited process and consequent reduction in fees when compared to other forms of dispute resolution.

 

Conclusion

In true Enlightenment fashion, speakers and delegates came together at ICCA Edinburgh 2022 to exchange ideas about international arbitration’s past, present and future. In the words of the Congress Programme Committee, “if well harnessed, this exchange of new ideas can lead to an acceleration of progress that will allow the process to meet the new challenges that come with [arbitration’s] greater role [in international dispute resolution]”. We hope the ideas presented at ICCA Edinburgh 2022 will inspire the community to address today’s most pressing issues. This will be the true measure to determine whether we’ve reached “Arbitration’s Age of Enlightenment”.

 

This post is not intended to serve as a comprehensive report of all Congress panels. For a full report of each Congress day, see Kluwer Arbitration’s special coverage here and the full 2022 Congress programme here.

Full recordings of the Congress panels will be shortly available on the ICCA website. All Congress papers will also be published in an upcoming volume of the ICCA Congress Series, available on KluwerArbitration.

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Delimiting the Limits of an Arbitrator’s Mandate: Submission and Remission

Mon, 2022-11-07 00:19

When determining what matters fall within the scope of submission to arbitration, five sources are relevant: the parties’ pleadings, the agreed list of issues, opening statements, evidence adduced, and closing submissions: CDM v CDP [2021] 2 SLR 235 at [18]. If a court, on an analysis of these five sources, finds that an award should be set aside (in full or in part), it can temporarily suspend the setting aside proceedings and remit the matter back to the tribunal for an opportunity for the tribunal to eliminate the grounds for setting aside. This is statutorily provided for under Article 34(4) of the UNCITRAL Model Law on International Commercial Arbitration (“Model Law”).

This was the situation in CKG v CKH [2021] 5 SLR 84. In this case, CKG entered into agreements to supply timber logs to CKH. In addition to the agreed price of the logs, CKH was to bear responsibility for all taxes, levies, and freight charges incurred by CKG (the “Charges”) in supplying the logs. CKH failed to reimburse the Charges to CKG and, consequently, CKG reduced its subsequent deliveries of timber logs to CKH: at [13] to [21].

In the Singapore-seated arbitration commenced by CKH, the tribunal found CKG liable for its failure to supply appropriate quantities of timber logs to CKH. In its award, the tribunal accepted CKH’s submissions that, pursuant to an agreement between the parties, it was incumbent on CKG to have attempted to settle any outstanding claim in an amicable manner before reducing its log supply. The tribunal, however, did not take into consideration CKG’s argument that it had reduced its deliveries due to CKH’s outstanding debt (the “Principal Debt”) from the Charges that had not been reimbursed, and interest thereon. Indeed, the tribunal did not make any findings in relation to the Principal Debt issue: CKH v CKG [2022] SGCA(I) 4 at [6] to [7].

CKG applied to the Singapore International Commercial Court (“SICC”) to set aside parts of the award. The court ruled that the tribunal had in its award failed to determine and take into account the Principal Debt. This failure amounted to a breach of the rules of natural justice, for which setting aside would prima facie be the appropriate remedy under both Singapore’s International Arbitration Act (Cap 143A, 2002 Rev Ed) (“IAA”) and the Model Law. However, the court instead chose to exercise its discretion to suspend the setting aside proceedings and remit the award back to the tribunal, on the basis that the tribunal could be trusted to decide the Principal Debt issue in an open-minded manner and should be given the opportunity to put right the breach of natural justice: CKG v CKH [2021] 5 SLR 84 at [61] and [69].

This resulted in two separate appeals: CKH v CKG [2022] SGCA(I) 4 (“First Appeal”) and CKH v CKG [2022] SGCA(I) 6 (“Second Appeal”). The First Appeal was against the SICC’s order that the setting aside proceedings be suspended and the award remitted back to the tribunal. The Second Appeal addressed two critical issues: first, whether and how far a party may, on a remission, go outside the scope of the order for remission, and second, whether and how far the SICC was correct in its analysis that the appellant was seeking, but should not be permitted, to do this: at [1].

 

First Appeal

In the First Appeal, the Court of Appeal was confronted with the critical issue of whether the Principal Debt and any interest on it were matters within the scope of the arbitration.

Interestingly, the starting point in this case was that there was no pleading in the arbitration addressing the position regarding the Principal Debt. Nonetheless, the absence of any pleaded counterclaim or set-off in CKG’s Statement of Defence and Counterclaim was not fatal. CKG had raised the Principal Debt issue as a defence to CKH’s claim for failure of log supply obligations, and also “sought a set off against any damages awarded in substitution of log supply to [CKH]”: at [18] and [27].

The Court, taking into account the five sources, held that on an objective analysis of the parties’ position and course of events, the natural expectation on both sides must have been that CKG’s claim to the outstanding Principal Debt should be accounted for as an item to be set off against CKH’s claims. Put another way, if the tribunal had adjudicated on the Principal Debt, CKH would not have been able to set aside the award on the ground that the tribunal had strayed outside the scope of the matters submitted to it for determination: at [26].

In light of cases that have repeatedly affirmed the relevance of the five sources in determining the scope of submission to arbitration, it is apt to highlight the Court of Appeal’s observations that “[t]he pleadings are the first place in which to look for the issues submitted to arbitral decision. But matters can arise which are or become within the scope of the issues submitted for arbitral decision, even though they are not pleaded.”: at [16].

Two comments can be made on this.

The first relates to the elusive definition of pleadings. Nowhere in the Model Law can one find the word “pleading”, let alone its definition. While it appears twice in the International Arbitration Act, that section 2A of the International Arbitration Act draws a distinction between “pleading”, “statement of case”, and “any other document in circumstances in which the assertion calls for a reply”, sheds no light on the definition of “pleading” or its ambit. This problem features also in the Singapore International Arbitration Centre Rules (which applied in the present case) and other common arbitration rules such as the UNCITRAL Arbitration Rules and the London Court of International Arbitration Rules.

The same issue arises in case law. In the seminal case of PT Prima International Development v Kempinski Hotels SA [2012] 4 SLR 98, neither the High Court nor Court of Appeal discussed the meaning of “pleadings” in the context of international commercial arbitration. In that case, the court held that “any new fact or change in the law arising after a submission to arbitration which is ancillary to the dispute submitted for arbitration and which is known to all the parties to the arbitration is part of that dispute and need not be specifically pleaded”. The Court of Appeal reasoned that “[g]iven the extensive correspondence, written submissions and expert opinion”, it was unnecessary for the parties to specifically plead facts of an ancillary nature. Such reasoning suggests a narrow interpretation of the definition of “pleadings”, but the court did not offer express guidance on the scope of the term. Had a wider interpretation been taken, the Court of Appeal could possibly have found that those “ancillary” facts were pleaded.

Notwithstanding the present five-sources framework, it would still be beneficial for the courts to offer guidance on the scope of “pleadings” since that remains “the first place in which to look for the issues submitted to arbitral decision”: CKH v CKG [2022] SGCA(I) 4 at [16]. Issues raised in a parties’ pleadings may therefore be less likely contested as falling outside the tribunal’s jurisdiction, as compared to issues raised in the any of the other four recognised sources, ie. the agreed list of issues, opening statements, evidence adduced, and closing submissions.

Second, the Court of Appeal’s decision in the First Appeal is an implicit refutation of Professor Gary Born’s critique that the Singapore courts have been “unduly formalistic” in their reliance on pleadings to answer “the question whether a particular issue or argument was submitted to the tribunal”.1)Gary Born, International Commercial Arbitration (3rd Ed, Kluwer Law International, 2021) at 3581. jQuery('#footnote_plugin_tooltip_42901_30_1').tooltip({ tip: '#footnote_plugin_tooltip_text_42901_30_1', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], }); Although the Principal Debt issue was not expressly pleaded, that did not bar a finding that the issue was nonetheless submitted to arbitration. As the Court of Appeal held, “[w]hether a matter falls or has become within the scope of the agreed reference depends ultimately upon what the parties, viewing the whole position and the course of events objectively and fairly, may be taken to have accepted between themselves and before the Tribunal”: at [16].

The approach taken in CKH comports with the “pragmatic” inquiry suggested by Born, which asks whether the parties and tribunal had a reasonable opportunity to consider and submit evidence and arguments on a particular issue. The parties in the present case did, as the court in CKH rightly held.

 

Second Appeal

For completeness, two comments should also be made in relation to the Second Appeal, which was dismissed by the Court of Appeal in 12 paragraphs as being “without merit”: at [12].

The first pertains to the scope of remission. After the matter was remitted to the tribunal, CKH raised several points that CKG contended fell outside the scope of remission. The tribunal thus ordered that dispute to be referred to the High Court judge, who then confirmed that the tribunal’s role was strictly limited to the terms of the remission order. On the facts, the points raised by CKH fell outside that scope: at [5] to [12].

The second and perhaps more interesting point is that only the High Court has the power to remit an arbitral award back to the tribunal. This proposition, which was stated by the Court of Appeal in CBS v CBP [2021] 1 SLR 966 at [103], was strictly speaking obiter. In that case, the issue did not arise because the Court of Appeal was not being “asked to set aside an award” within the meaning of Article 34(4) of the Model Law. The award had already been set aside by the High Court, and the Court of Appeal was being asked to reverse it. Where the issue may arise is in the following hypothetical scenario. Suppose the High Court has chosen to not set aside an award. The Court of Appeal – when asked to do so – would not have the option of ordering remission as an alternative to a setting aside because the apex court has no power to do so. This is also supported by section 8(1) of the IAA, which confirms that the court under Article 34(2) of the Model Law is the High Court.

References[+]

References ↑1 Gary Born, International Commercial Arbitration (3rd Ed, Kluwer Law International, 2021) at 3581. function footnote_expand_reference_container_42901_30() { jQuery('#footnote_references_container_42901_30').show(); jQuery('#footnote_reference_container_collapse_button_42901_30').text('−'); } function footnote_collapse_reference_container_42901_30() { jQuery('#footnote_references_container_42901_30').hide(); jQuery('#footnote_reference_container_collapse_button_42901_30').text('+'); } function footnote_expand_collapse_reference_container_42901_30() { if (jQuery('#footnote_references_container_42901_30').is(':hidden')) { footnote_expand_reference_container_42901_30(); } else { footnote_collapse_reference_container_42901_30(); } } function footnote_moveToReference_42901_30(p_str_TargetID) { footnote_expand_reference_container_42901_30(); var l_obj_Target = jQuery('#' + p_str_TargetID); if (l_obj_Target.length) { jQuery( 'html, body' ).delay( 0 ); jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight * 0.2 }, 380); } } function footnote_moveToAnchor_42901_30(p_str_TargetID) { footnote_expand_reference_container_42901_30(); var l_obj_Target = jQuery('#' + p_str_TargetID); if (l_obj_Target.length) { jQuery( 'html, body' ).delay( 0 ); jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight * 0.2 }, 380); } }More from our authors: International Investment Protection of Global Banking and Finance: Legal Principles and Arbitral Practice
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ECT Modernisation Perspectives: Unpacking the Impact of the Revised ECT Text on Dispute Resolution

Sun, 2022-11-06 00:33

The Energy Charter Treaty (ECT) has long been subject to debate focusing on its perceived chilling effect on energy transition, the compatibility of intra‑EU disputes under the ECT with EU law, and the cost-efficiency of investment arbitration.

On 24 June 2022, after five years of negotiations, the Energy Charter Conference Member States reached an agreement in principle regarding revisions to the ECT. The amended text is expected to be adopted (subject to legal revision required to finalise it) by the Energy Charter Conference on 22 November 2022.

This article focuses on the implications of the revised text for dispute resolution under the ECT (see further coverage on the Blog here). We address the environmental focus of the anticipated reforms and conciliation of State-to-State disputes relating to sustainable development and climate change. We also comment on the amended definitions of Investors and Investments, the intra-EU application of the ECT, and a new procedure for early dismissal of frivolous claims. In concluding, we briefly consider the possible future of the ECT following the withdrawal plans recently announced by a number of EU Member States.

 

The Greening of the ECT

Some of the most significant changes to the ECT seek to address the ECT Contracting Parties’ desire to promote sustainable development and combat climate change.

First, the modernised ECT will apply to new types of fuels, including hydrogen, anhydrous ammonia, biomass, biogas, and synthetic fuels. The ECT will also apply to the capture, utilisation and storage of carbon dioxide conducted to decarbonise the energy system. However, the ECT will allow for a gradual phase out of fossil fuels by individual Contracting Parties. For example, it is anticipated that the ECT will not apply to any new investments made in the EU and UK after 15 August 2023 in the fossil fuel industry and electricity produced from fossil fuels (subject to certain exceptions for low carbon investments) and potentially excluding protection for existing fossil fuel investments by or before 31 December 2040.

Second, the Contracting Parties agreed to clarify and amend relevant substantive provisions.

  • The modernised ECT will “reaffirm” the right of the Contracting Parties to regulate to achieve legitimate policy objectives, including the protection of the environment, climate, health, safety and public morals.
  • Article 10 will confirm that fair and equitable treatment includes, among other things, frustration of investor’s legitimate expectations.
  • Article 13 will provide that non-discriminatory measures designed and applied to protect legitimate policy objectives will not constitute expropriation unless such measures are “manifestly excessive”.

Third, the Contracting Parties also agreed to significantly expand Article 19 on Sustainable Development and add a new provision on Climate Change and Clean Energy Transition.

  • Article 19 will, among other things, reaffirm each Contracting Party’s rights and obligations under environmental treaties. Importantly, the Contracting Parties will require that an impact assessment of new energy investment projects is carried out and made public. Such assessments shall address the effects of the project on population and human health, biodiversity, environment and climate, and cultural heritage.
  • The new article on climate change will reaffirm each Contracting Party’s commitments to promote climate policies and investment of relevance for climate change mitigation and adaption.

 

State-to-State Dispute Resolution

Article 27 of the ECT, which sets out dispute resolution procedures applicable to settlement of disputes between Contracting Parties, will not apply to Article 19 or to the new article on climate change. Instead, Article 28 bis will provide that disputing Contracting Parties will resolve disputes through diplomatic channels or, if such attempts fail, refer their dispute to conciliation. Notably, the proposal by the EU countries to refer State-to-State disputes related to sustainable development and climate change to arbitration appears to have been rejected. The conciliator will be appointed by the Secretary General of the Charter Conference Secretariat and will issue a non-binding but public report. The Charter Conference will monitor the implementation of any measures recommended by the conciliator. While a similar conciliation procedure has been in place for some time for disputes arising under Article 7 of the ECT (Transit), we are not aware that it has ever been used in practice.

 

Investors and Investments

In addition to modifying the scope of the ECT, the revised text also narrows the concepts of both “investor” and “investment” by:

  • Requiring that an “investor” satisfies a “substantial business activities” test based on indicia, such as “physical presence, employment of staff, turnover generation or payment of taxes” in the host state, and excluding from the definition those who are nationals or “permanent residents” of the host state at the time of making an investment (including dual nationals); and
  • Defining “investment” by reference to an “indicative list of characteristics” similar to the Salini criteria, including commitment of capital, expectation of gain, duration and risk, and also include specific exclusions, such as “judicial and administrative decisions”.

In addition, the revised ECT will require tribunals to decline jurisdiction where (i) the dispute was very likely to arise when the claimant acquired ownership or control of the investment, and (ii) such acquisition of ownership or control was for the main purpose of submitting a claim under the ECT. This provision appears to be an attempt to reflect existing authorities finding that a restructuring may affect the jurisdiction or admissibility of a claim where the dispute had arisen or was reasonably foreseeable at the time of the restructuring.

 

Intra-EU Application of the ECT

A further restriction to the dispute resolution provisions arises from the fact that, following the Court of Justice of the European Union (CJEU) judgments in Achmea and Komstroy, the Contracting Parties have agreed to amend Article 24(3) of the ECT to provide that the investor-State dispute settlement (ISDS) provisions (Article 26 of the ECT) will not apply among Contracting Parties that are members of the same Regional Economic Integration Organisation, such as the European Union. Further to this amendment, “to prevent tribunals from continuing to accept jurisdiction” in intra-EU disputes, the EU expects to conclude an agreement with EU Member States within the meaning of Article 31(3)(a) of the Vienna Convention on the Law of Treaties (“subsequent agreement between the parties regarding the interpretation of the treaty or the application of its provisions”). The EU expects that such agreement will include “a confirmation that the ECT has never, does not and will not apply intra-EU, that the ECT cannot serve as a basis for intra-EU arbitration proceedings, and that the sunset clause does not apply intra-EU”. This will formalise the EU’s existing position that the ECT’s ISDS provisions do not apply where an EU investor seeks to bring a claim against an EU member state.

 

Frivolous Claims

Finally, a new Article will also allow tribunals, upon the respondent’s request, to dismiss “frivolous claims” in two scenarios.

  • First, before the first case management meeting, a respondent may raise an objection that a claim or any part thereof is “manifestly without legal merit”. The objection may relate to jurisdiction and the substance of the claims. Unless the tribunal considers the objection “manifestly unfounded,” it will suspend any proceedings, give the parties an opportunity to comment, and – assuming the facts alleged by the claimant to be true – issue an award or decision on the objections within 120 days. This provision appears similar to the ICSID Arbitration Rule 41, which also allows for early dismissal of claims where the claim is found to be “manifestly without legal merit”.
  • Second, no later than with its reply to the claim, a respondent can object that, “as a matter of law, the claim or any part thereof, is not a claim in respect of which an award in favour of the Investor may be made, even if the facts alleged by the Investor were assumed to be true”. Notably, the tribunal is also required to suspend proceedings on the merits while it determines such an application, unless it finds the respondent’s objections “manifestly unfounded”. We are not aware of a similar provision in other treaties or arbitral rules, so there is little guidance as to how this provision may be applied in practice.

The new article makes it clear that these two mechanisms are not exhaustive and that tribunals may have the authority to address other objections as a preliminary question.

 

Conclusion

The revisions to the ECT demonstrate that climate goals can be advanced in a legal framework that continues to encourage the legitimate exercise of non-discriminatory public interest regulation. However, that has not stopped multiple EU Member States (such as The Netherlands, Spain, Poland and France) announcing their intention nevertheless to withdraw from the ECT (see also here).

According to Article 47(3) of the ECT, where a State withdraws from the ECT, it will continue to apply to investments made before the withdrawal for a period of twenty years. States that withdraw from the ECT may therefore find themselves in the position of continuing to extend investment protection to fossil fuels, while denying it to the very energy transition technologies the amendments to the ECT were designed to encompass

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Open Letter to International Arbitration Institutions and Counsel: A Real-World Concrete Solution to Increase Diversity in International Arbitration Tribunals

Sat, 2022-11-05 00:33

The international arbitration community has made progress on improving diversity across the field, but continues to fall short on appointing diverse international arbitration tribunals.

Experts point to a range of reasons for the lack of diversity in international arbitration tribunals, chief among which is the lack of an experienced pool, coupled with the reluctance of parties to appoint inexperienced arbitrators, which perpetuates historical issues over the lack of arbitrator diversity in international arbitration.  In this post, we respond to these systemic issues with a concrete solution to the problem: arbitration rules and model arbitration clauses should include a mandatory obligation requiring parties to strive to appoint a diverse tribunal.  Additionally, we propose that counsel implement the same requirement when drafting bespoke arbitration clauses.  Our solution allows for flexibility in the appointment process, but provides a mandatory obligation, ensuring that counsel must consider diversity seriously.

 

The Benefits of Diverse Tribunals Are Unquestionable

A diverse tribunal is key to enhancing the legitimacy of arbitral tribunals, and improving the perception of fairness and impartiality in arbitration.  A diverse arbitral tribunal here refers to representation of diversity across the tribunal.  While this blog post does not attempt to define diversity, it finds guidance in the International Centre for Dispute Resolution (“ICDR”) Diversity Initiative, which defines diversity as encompassing gender, race, ethnicity, age, religion, and sexual orientation.  We also note the inclusion of geographic and national origin among other traits.1)See generally Maria R. Volpe, Measuring Diversity in the ADR Field: Some Observations and Challenges Regarding Transparency, Metrics and Empirical Research, 19 PEPP. DISP. RESOL. L.J. 201, 203–04 (2019), for a discussion on defining diversity in ADR. jQuery('#footnote_plugin_tooltip_42999_30_1').tooltip({ tip: '#footnote_plugin_tooltip_text_42999_30_1', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], });

As the President of the International Chamber of Commerce (“ICC”), Claudia Salomon, notes, diversity is essential to maintain the legitimacy of international arbitration as a method of dispute resolution for the international business community.  Other commentators have echoed this.  After all, it is important for the decision-making tribunals to better represent the global business community at large.  Representation helps build trust in the system and increase engagement with arbitration among those who are hesitant.  The arbitration community agrees as well, with 57% of those surveyed finding diversity across a panel to have a positive effect on their perception of a tribunal’s independence and impartiality.

Appointing diverse tribunals is morally the right thing to do.  Moreover, a diverse tribunal also results in better outcomes.  Research from leading institutions, such as The Wall Street Journal, McKinsey and Company, and Harvard Business Review, has shown, time and time again, that diverse teams perform better and make better decisions.  Diverse tribunals bring different perspectives to the table and address previously ignored nuances.  Furthermore, the international arbitration community wants more diverse tribunals.  A recent survey found that increasing diversity was one of the top adaptations to make arbitration institutions or rules more attractive to users.

We have seen the development and growth of numerous laudable initiatives in recent years, including the Equal Representation in Arbitration (“ERA”) Pledge (a pledge to improve the representation of women in arbitration and to appoint women as arbitrators on an equal opportunity basis); The African Promise (a pledge to improve the representation of African arbitrators); and the Cross-Institutional Task Force of the International Council for Commercial Arbitration (“ICCA”), which publishes statistics on the appointment of female arbitrators and outlines best practices and opportunities to promote gender diversity in international dispute resolution.

 

Progress Is Still Needed

Statistics from the ICCA reflected consistent growth in the appointment of women from 2015–2019, an increase from 12.2% to 21.3% of all appointments.  That is progress, but further progress is needed.  While statistics for age, sexual orientation, race and religion are not publicly available, there is no reason to believe that diversity statistics would be more encouraging there.

The perception of the international arbitration community also indicates a need for change.  The outlook is positive on gender diversity, with 61% agreeing that progress has been made over the last three years.  However, the perception remains that sufficient progress has not been made on geographic (only 38% agreeing), ethnic (31%), cultural (35%), and age (36%) diversity.

 

The Issue Lies with Party Appointments

With the desire to increase diversity in the composition of tribunals, and with ample reason to do so, why has the international arbitration world struggled to make progress?

This issue is most pervasive with party appointments.  On average, in 2019, institutions appointed women to tribunals 34% of the time, while parties only appointed women to tribunals in a mere 13.9% of cases.  At the London Court of International Arbitration (“LCIA”), the court, in 2020, appointed women in an impressive 45% of all cases, yet parties appointed women only 22% of the time.  Therefore, a viable proposal would need to tackle party and counsel appointments.

Similar patterns are seen in other aspects of diversity.  The LCIA court selected non-British arbitrators 47% of the time, compared to the parties in LCIA arbitrations, who selected a non-British arbitrator only 32% of the time.

Commentators point to a range of obstacles to increasing diversity.  Common among these is the ‘pipeline issue’—that arbitrators are themselves drawn from groups which are historically homogenous, including judges and senior lawyers.  Similarly, others have talked about the ‘chicken and egg’ problem, where appointments are based on experience but experience requires appointments.  Justifications aside, parties, and their counsel, go back to the same—not very diverse—pool of arbitrators.  This is the problem we seek to help address.

 

Our Proposal

We propose that international arbitration institutions implement the following language in their institutional rules: “the parties shall strive to appoint a diverse tribunal.”    The use of shall serves to establish a mandatory obligation.  Such an obligation is essential to give this issue the attention it deserves and hold parties accountable and unable to get away with empty promises.  The strive language ensures that the obligation is one of best efforts, so parties are excused from compliance where impracticable.  Lastly, the mention of a diverse tribunal as opposed to diverse arbitrators gets to the core of the issue of diversity.  It requires that appointing parties consider the tribunal as a whole, without the exclusion of any specific arbitrator.  While this proposal shares the goals of diversity pledges such as the ERA, it differs by targeting all forms of diversity, is specific to the appointment of arbitrators, and would be a mandatory obligation imbedded either directly in an arbitration clause or indirectly via institutional rules.

This kind of clause could be incorporated in institutional rules through an ‘opt-out’ provision, which would apply unless parties expressly agree to exclude it.  Such provisions are common in institutional rules, as seen in the Expedited Procedure and Emergency Arbitrator articles of the ICC Rules, the ICDR Mediation requirement, the Emergency Arbitrator, Confidentiality, and Costs articles of the Stockholm Chamber of Commerce, and the Emergency Arbitrator article of the LCIA Rules.  The opt-out requirement would help solidify this rule as a default provision, while at the same time maintaining the party autonomy that is key to international arbitration.  Moreover, as this rule would only apply to arbitration agreements which come into force after the new rule is adopted, party autonomy would continue to be protected.

We also suggest that international arbitration institutions include our suggested language (“the parties shall strive to appoint a diverse tribunal”) in model arbitration clauses, which would likely lead to widespread adoption, as drafting counsel often use, or are influenced by, model clauses.  After all, international arbitration practitioners surveyed stated that the most effective initiative to encourage greater diversity in arbitral appointments would be for institutions to adopt an express policy regarding arbitrator appointments.

We can only hope that this proposal creates a dialogue and effectuates positive change on the appointment of more diverse international arbitration tribunals.

 

Jose F. Sanchez is a New York based Partner of Vinson & Elkins LLP, where he focuses on International Dispute Resolution.  Kartik Rajpal is an associate of Vinson & Elkins LLP also based in New York.  The authors’ ample experience working on international arbitration matters touching on numerous jurisdictions around the globe has prompted them to publish this piece, hoping that it helps improve diversity in the composition of international arbitration tribunals globally.  This article only expresses the opinions of the authors, and not of any of the entities with which they are affiliated.

References[+]

References ↑1 See generally Maria R. Volpe, Measuring Diversity in the ADR Field: Some Observations and Challenges Regarding Transparency, Metrics and Empirical Research, 19 PEPP. DISP. RESOL. L.J. 201, 203–04 (2019), for a discussion on defining diversity in ADR. function footnote_expand_reference_container_42999_30() { jQuery('#footnote_references_container_42999_30').show(); jQuery('#footnote_reference_container_collapse_button_42999_30').text('−'); } function footnote_collapse_reference_container_42999_30() { jQuery('#footnote_references_container_42999_30').hide(); jQuery('#footnote_reference_container_collapse_button_42999_30').text('+'); } function footnote_expand_collapse_reference_container_42999_30() { if (jQuery('#footnote_references_container_42999_30').is(':hidden')) { footnote_expand_reference_container_42999_30(); } else { footnote_collapse_reference_container_42999_30(); } } function footnote_moveToReference_42999_30(p_str_TargetID) { footnote_expand_reference_container_42999_30(); var l_obj_Target = jQuery('#' + p_str_TargetID); if (l_obj_Target.length) { jQuery( 'html, body' ).delay( 0 ); jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight * 0.2 }, 380); } } function footnote_moveToAnchor_42999_30(p_str_TargetID) { footnote_expand_reference_container_42999_30(); var l_obj_Target = jQuery('#' + p_str_TargetID); if (l_obj_Target.length) { jQuery( 'html, body' ).delay( 0 ); jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight * 0.2 }, 380); } }More from our authors: International Investment Protection of Global Banking and Finance: Legal Principles and Arbitral Practice
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